The fortunes of U.S. coal companies continue to fade.
The ongoing switch to natural gas and renewable energy continues to damage coal miners. Coal plants are shuttering amid weak demand, and the international market is not looking any better. Prices for metallurgical coal, which is used to make steel, are hovering around their lowest levels in more than a decade. Dipping below $100 per metric ton, coal prices are now 70 percent lower than they were four years ago.
Coal stocks have taken a beating as a result. Peabody Energy Corporation, the world’s largest private sector coal company, has seen its share price cut in half in just a month, falling below $1.68 at the close of business on July 8. The company announced the sale of an Australian mine on the same day. “We suspect anything and everything is for sale at the right price,” Mark Levin of BB&T Capital Markets, wrote in an investor note, referring to assets for the whole industry. “Unfortunately, the opportunity to get maximum value for these assets is limited.” Related: Now Is A Good Time To Pick Up Some Oil Stocks
Arch Coal, another massive coal miner, is refinancing some of its outstanding debts in order to gain breathing room. It is struggling under the weight of horrific market conditions and its share price has lost nearly 90 percent of its value over the past year. Related: Midweek Sector Update: Oil Prices Crash Again – Another Downturn Ahead?
Exports are not offering coal producers the lifeline the industry once thought it would. Demand in China is weaker than expected, and the overbuild of coal mines in the last decade has left the world with a glut of capacity. Coal exports from Hampton Roads in Virginia, one of the largest ports on the east coast of the U.S., hit its lowest level in six years for the month of June, according to Platts.
That probably won’t change. “Met prices down here, in combination with steam prices the way they are, make it impossible…for [many U.S. coal companies] to improve their balance sheets in a material way,” Levin from BB&T Capital Markets wrote.
Several companies have already declared bankruptcies, but more are likely.
By Charles Kennedy of Oilprice.com
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