Mike Sonnenberg

In this series, we’ll look at the structure of the thermal power industry before moving on to focus on the power generation equipment sector.

The power generation equipment industry is made up of various sub-industries, each with a structure of its own.

The retirement of coal-fired power plants and the impact of new regulations proposed by the EPA present two major blows to the US thermal coal industry.

Wall Street analysts’ consensus estimate for loss per share was $0.289.

The first half of 2014 saw 4,350 MW (megawatts) of new electricity generating capacity, according to the EIA (Energy Information Administration). Of this, 2,319 MW, or 53.3%, was natural gas–fired.

According to the EIA, 115 Bcf of natural gas was drawn out during the week ending January 30. It was a lower-than-expected draw-down.

The marginal increase in natural gas prices last week is good news for coal producers (KOL), especially the ones in the Appalachians and the Midwest.

This series is our attempt to educate our readers about leveraged and inverse ETFs, their structure, and their suitability for retail investors.

At the beginning of winter, the PRB coal producers are struggling to get enough rail cars to meet utilities’ demand. The PRB coal producers may see increased demand well into 2015.

PRB coal prices have remained under pressure since the start of the year due to low natural gas prices.

Natural gas prices and coal’s market share in electricity generation highly correlate. When natural gas prices rise, coal gains market share.

Powder River Basin coal prices averaged $10.55 per ton for the week ended July 24. Prices averaged above $10 a ton for the first time in the last five weeks.

Coal is an important commodity for railroad companies such as Union Pacific (UNP) and CSX (CSX). However, coal’s importance in freight is falling due to the emergence of shale oil.

Electricity generation in the US increased to 86.8 million MWh for the week ended September 4, a 4% increase from the previous week’s 83.5 million MWh.

The change of 94 Bcf in the underground natural gas inventory during the week of August 28 came in higher than Wall Street analysts’ expectation of 84 Bcf.

On Friday, investment bank UBS started coverage on Beyond Meat Stock (BYND). At 10:08 AM ET today, the stock was trading 4.4% lower at $76.5.

Crude oil prices as of January 22 Crude oil prices recovered marginally during the week ended January 22, 2016. WTI (West Texas Intermediate) crude oil prices closed at $30.99 per MMBtu (million British thermal units) on January 22, 2016, compared to the closing price of $29.42 per barrel on January 15, 2016. Meanwhile, Brent crude […]

While its sales came in lower than analyst estimates, Cloud Peak Energy (CLD) beat analyst estimates on the adjusted net losses front in 2Q15.

So far, the milder weather this winter kept natural gas prices subdued. As a result, coal producers (KOL) are under pressure. The current environment isn’t encouraging for coal.

Arch Coal sold 29.5 million tons of PRB coal in 3Q15. This was up from 29.3 million tons in 3Q14 and 25.5 million tons 2Q15 due to higher demand.

Peabody (BTU) is the largest reserve holder. It’s the second largest producer in the ILB. It shipped 30 million tons in 2013. The company runs three underground mines and five surface mines in the region. BTU’s coal is shipped to utilities in the region. It’s also exported to Europe through the Gulf Coast.

Arch Coal reported adjusted EBITDA of $134.8 million in 3Q15 compared to $71.9 million in 3Q14 despite the pricing pressure it experienced during 3Q15.

With just under a billion tons produced in 2013, the U.S. ranks second in coal production. China is the largest producer with 3.7 billion tons. However, the U.S. holds much higher coal reserves at 237 billion tons—over a quarter of the world’s coal reserves. China has coal reserves at 114 billion tons. At the current consumption rate, the U.S. reserves can last for over 200 years.

After launching TerraForm Power (TERP) in 2014, SunEdison (SUNE) launched an IPO of its much hyped emerging market yieldco, TerraForm Global (GLBL), in July 2015.

More than 90% of the coal produced in the US is used for the generation of electricity, meaning that the power utility segment is coal’s largest end user.

With established market positions and diversified product offerings, GE and Siemens are poised to benefit from investments.

The western region in the U.S. includes the area west of the Mississippi River. The region produced 520 million tons of coal for the 12 months ending September 11, 2014. The entire U.S. produced 974 million tons of coal during the same period. The western region accounted for 53% of the total coal production in the U.S. It’s important to note that 13 out of 24 western states produce coal.

Unlike its peers (KOL) like Walter Energy (WLT), Alpha Natural Resources (ANR), and Arch Coal (ACI), Cloud Peark doesn’t have any exposure to metallurgical coal.

Coal accounts for less than a 20% share in electricity generation in Russia (RSX). Coal production is much higher than the domestic demand. As a result, most of Russia’s thermal coal is exported.

Hong Kong’s Hang Seng Index, which generally follows the mainland’s lead, closed 2.39% lower at 28,311,07 on May 9.

Arch Coal (ACI) has narrowly escaped bankruptcy in 2015 so far. However, it may happen anytime, considering the dilapidated situation of Arch Coal’s finances.

Of the 41 utilities stocks we track, 30 gained during the week ended July 17. A positive Greek deal cheered markets globally, and dovish comments by the Fed pushed mid-to-long-term bond yields down.

According to EIA estimates, US coal shipments increased marginally to 18.7 million tons during the week ending August 28.

Thermal coal is mostly used for electricity generation. So the state of the utilities sector is by far the biggest driver of the coal industry.

Currently, the coal industry is going through heightened volatility. As a result, it makes even more sense for us to cover the short-term indicators.

Met coal producers are the worst hit in the current energy environment. Based on our analysis so far, we can conclude that the higher the revenue share of met coal, the steeper the stock prices fell in 2014.

After falling by 0.9% on April 21, the Utilities Select Sector SPDR ETF (XLU) posted marginal gains of 0.2% on Wednesday, April 22.

The 13F filing showed that George Soros bought almost 500,000 Slack (WORK) shares at an average price of $37.5 per share during the second quarter.

The Fed, in its latest announcement, has further reduced its bond buying program to $55 billion a month, signalling that the improvement in the economy is on track.

While May was marked by Uber’s (UBER) flop IPO, June saw three sharing economy IPOs do great on their debuts, meaning windfall gains for early investors.

After rising marginally yesterday, Hong Kong’s Hang Seng Index fell today. The index lost 1.15% to end at 28,185.98. Only seven stocks in the index rose, while 39 declined. Four remained unchanged. Tencent Holdings (TCEHY) was one of the worst performers with a 1.8% fall.

Peabody Energy (BTU), Arch Coal (ACI), and Cloud Peak Energy (CLD) are major coal producers that operate in the Powder River Basin region.

China accounts for almost half of the world’s raw steel production. In 2013, China produced 779 million tons of steel. This was a 7.5% increase over 724 million tons in 2012.

Coal is the cheapest fossil fuel, but it’s also the most polluting. With its massive electricity generation capacity—mainly coal-fired—China emits the most carbon dioxide in the world.

Yesterday, Ford announced that the registrations for the high-end version of its first all EV (electric vehicle), Mustang Mach-E, are full.

Westmoreland Coal Company (WLB) operates a unique business model of supplying coal to power plants in the vicinity of mines through cost-effective transportation modes on long-term, cost-protected contracts.

Walter Energy’s 1Q15 net losses were $80.2 million, compared with $92.2 million in 1Q14. The lower net loss largely resulted from a $58.6 million gain on the extinguishment of debt.

Apart from shipping companies, coal producers (KOL) around the world benefit from China’s coal imports. However, competition in the Pacific market remains steep.

Operating costs for Arch Coal’s bituminous thermal segment dropped in 3Q15. Operating cost per ton hit $24.63, higher than in 3Q14 but lower than in 2Q15.

Central Appalachian thermal coal prices came in at $50.90 per ton for the week ending February 6. Coal prices increased—despite the fall in natural gas prices.

In this series, we’ll analyze major coal producers’ debt and liquidity positions, cash burn, probability of default and credit ratings in an attempt to find out which company will be next.

According to the EIA, US coal shipments rose to 16.1 million tons in the week ending December 4, compared to 15 million tons in the week ending November 27.

Yesterday, Uber (UBER) co-founder Travis Kalanick sold about 20 million UBER shares, raking in over half a billion dollars.

After falling on Friday, the Hang Seng Index started the week of the G20 meeting on a positive note. The index gained 0.14% today. Last week, the index gained 5%, and Friday was the only it posted losses during the week.

Investors willing to take a little higher risk than what they find in Treasuries, if they’re in search of higher returns, can consider investing in investment-grade corporate bonds.

South Korea’s KOSPI remained in the green on May 15. The index gained 0.53% on the day to end at 2,092.78.

We’re still trying to digest the news about Tesla buying land for Gigafactory 4 in Volkswagen’s backyard. Volkswagen just accelerated its EV plans.

Last week, CNBC said that WeWork (WE) is firing 2,400 people. Supposedly, this will “create a more efficient organization.”

While REITs started trading in 1951 and MLPs started off in 1981, the first yieldco was floated in 2005 by Seaspan Corporation, a shipping company.

President Trump tweeted that the duty on $200 billion worth of Chinese goods will increase by 15 percentage points from 10% to 25%.

Henry Hub benchmark natural gas prices rose in the week leading up to December 11. But the benchmark natural gas price fell to $1.77 per MMBtu on the day.

Coal’s share in electricity generation is down from over 50% in 2004 to 39% in 2013. During the same period, natural gas’ share increased from 18% to 27.5%.

While First Solar has traditionally been manufacturing thin-film CdTe modules, which don’t require polysilicon, their prices have fallen in recent years.

The EIA published its latest report on capacity factors for power plants on July 27. Coal-based power plants surpassed natural gas-based power plants in utilization.

Arch Coal’s Bituminous Thermal coal segment sold 2.3 million tons in 3Q15 compared to 2.2 million tons in 3Q14 and 1.9 million tons in 2Q15.

Even among those who have jobs, the fraction of people working part-time but who would like to work more hours is higher than the historical average.

Western Coal acquisition As we discussed in the previous part, Walter Energy traded under a dollar for more than a quarter until trading was suspended on the NYSE on July 8. The seeds of the fall were sowed back in 2011. Walter Energy filed for Chapter 11 bankruptcy on July 15, 2015. On April 1, […]

Hong Kong’s Hang Seng Index, which has been under severe pressure this quarter, was the best performing Asian index on June 19 with 2.56% gains. The index recorded its third consecutive gain.

Cloud Peak Energy (CLD) shipped 16.0 million tons of coal from its three owned and operated mines in the Powder River Basin (or PRB) in 2Q15.

Hang Seng falls Hong Kong’s Hang Seng Index fell in early trading and didn’t recover until the end of the trading day. The index dropped 1.16%, or 329 points, to end the day at 27,946.46, near the day’s low. On May 16, the iShares MSCI Hong Kong ETF (EWH) gained 0.28% in trading on the […]

Natural gas prices ended the September 4 week in red. Low natural gas prices have eaten away market share from coal in electricity generation.

On June 26, Greek Prime Minister Alexis Tsipras called for a July 5 referendum to decide whether Greeks want to accept the creditors’ terms.

Ambre Energy was founded in June 2005. It’s an Australian-American coal and oil shale company. The company’s Australian headquarters are located at Brisbane. The head American office is located at Salt Lake City, Utah. The company operates in three business lines—U.S. coal export infrastructure, international coal marketing and trading, and U.S. thermal coal production.

Germany’s trade balance increased to $20 billion in March compared to $18.7 billion in February.

Arch Coal’s Appalachia segment shipped 3 million tons of coal in 3Q15, down from 3.6 million tons in 3Q14, including 1.6 million tons of metallurgical coal.

The power utilities sector remained under stress last week. The representative of the sector, the Utilities Select Sector SPDR (XLU), dropped by 4.1%.

In a landmark 5–4 ruling on June 29, the Supreme Court ruled that the EPA unreasonably interpreted the Clean Air Act in writing the original form of its 2012 Mercury and Air Toxic Standards.

For the week ending September 4, Powder River Basin spot coal prices averaged $10.7 per ton—$0.17 higher than the price for the week ending August 28.

Crude oil prices rose for the second straight week, albeit at a slower pace. When crude oil production rises, there are fewer railcars available to transport coal.

On July 15, Walter Energy filed for Chapter 11 bankruptcy. This passes control over the company to its senior creditors. Junior debt holders will have to let go of their claims.

Brazil, a $2.5 trillion economy, is the seventh largest economy in the world. Brazil exports commodities such as iron ore, cotton, and coffee.

Hong Kong’s Hang Seng Index opened lower today and fell sharply in early trade in response to the political situation in the city. As life started getting back to normal in Hong Kong, the bulls returned and the index maintained upward momentum. The Hang Seng closed almost flat at the end of the session.

Why are we combining thermal coal and power indicators? Thermal coal is mostly used for electricity generation.

In 3Q15, Arch Coal’s PRB operating cost per ton came in substantially lower, at $11.71 per ton compared to $12.42 in 3Q14.

The Illinois Basin produced ~120 million tons of coal during the 12 months ending September 13, 2014. This was ~65% of the interior region’s total production of 185 million tons during the same period. With estimates reserves of ~50 billion tons, the basin ranks second only to the gigantic PRB.

Currently, the thermal coal industry is experiencing heightened volatility. As a result, it makes even more sense for us to cover the short-term indicators.

A lower-than-expected natural gas inventory indicates a lower-than-expected supply, which means a higher-than-expected demand—and boosts natural gas prices.

China’s installed capacity has grown 10.8% every year over the last decade. It adds 80–90 GW every year—this is equal to the United Kingdom’s entire installed capacity.

The Guggenheim Solar ETF (TAN) gained 0.9% on April 21. American solar stocks account for 47% of the fund’s holdings, and Chinese solar stocks account for another 44%.

With over 6,700 MW of hydro and wind capacity under operation, Brookfield Renewable Energy Partners (BEP) dwarfs all other yieldcos we’ve looked at.

All 40 utilities we track saw a fall in their stock prices during the week ending September 4. The broad-based SPDR S&P 500 ETF (SPY) lost a whopping 3.5% during the week.

FirstSolar (FSLR) nailed its 2Q15 earnings. The company’s focus on solar power differentiates it from SunEdison (SUNE).

WTI crude oil prices closed at $35.62 per MMBtu on December 11, compared to the closing price of $39.97 per barrel on December 4.

On July 16, the NYSE announced that it suspended trading of Alpha Natural Resources’ (ANRZ) common stock with immediate effect.

Most American coal producers are building liquidity through various means to make sure they survive the downturn and avoid bankruptcy.

The latest EEI report for the week ending January 15, shows that US electricity generation jumped to 79.7 million MWh from 79.2 million MWh the week before.

The European Union decided to review a minimum import price agreement for Chinese solar panels, pulling the solar stocks down.

Transporting high sulfur coal over long distances adds to pollution. Since the EPA waged a war on coal, it probably won’t allow ILB coal to be transported to other parts of the U.S.—even if it makes economic sense. Sulfur can be removed by coal washing, but it would add to the cost. Powder River Basin (or PRB) coal is much cheaper than ILB coal. This blocks ILB’s passage west of Mississippi. This will confine ILB coal’s use to the Midwest.

Henry Hub benchmark natural gas prices came in at $2.22 per MMBtu on January 22, 2016. This compares to $2.18 per MMBtu on January 15, 2016.

One thing that drew our attention towards WLB is its stock market performance. While stocks of other coal producers are down substantially since the start of the year, WLB is up 83%.