Coal news and updates

Investors see that the worst may be over for the coal market after a series of output cuts around the world, said the chairman and chief executive officer of Peabody Energy Corp. (BTU), the largest U.S. producer.

 

“We’ve had essentially flat pricing now for about nine months,” Greg Boyce said in an Oct. 24 phone interview. “All of the investors are encouraged that that represents kind of a bottom to the commodities cycle, but they’re waiting to see what happens in terms of the timing of that uptick.”

 

Peabody and most of its publicly traded domestic competitors have posted losses amid the worst slump in the coal industry in decades. The price of metallurgical coal used in steelmaking has fallen to a six-year low because of slowing Chinese growth. Thermal coal used to generate electricity has also dropped on tighter emissions regulations and competition from cheap natural gas.

 

Shares of Peabody have fallen more than 9 percent since the start of trading on Oct. 20, when it reported a third-quarter loss of 56 cents a share. Boyce said Peabody’s stock declined because investors haven’t yet seen evidence that the global oversupply of coal is abating.

 

Peabody scaled back output of steelmaking coal at its Burton Mine in Australia this year. Glencore Plc and Walter Energy Inc. are among other producers that have made reductions. There have been 30 million tons of metallurgical-coal cutbacks announced globally this year, Boyce said in an Oct. 20 statement.

 

Rebound ‘Inevitable’

 

Investors will spend the next couple of quarters looking for signs of a recovery in coal prices, Boyce said. Given the industry’s reduction in new capital investments, a rebound is “inevitable,” he said.

 

“There’s going to be a long lag where you’ve got less supply than demand,” he said. “That’s going to have a strong, strong pull for the sector.”

 

Catalysts that coal investors are looking for include rising Chinese demand and an improvement in U.S. railroad capacity to deliver from mining regions such as Wyoming’s Powder River Basin, he said. Peabody, which produces most of its thermal coal in the PRB, said last week rail bottlenecks there are limiting its sales.

 

Boyce said Peabody will be “very well positioned” when the coal cycle does eventually turn. He doesn’t expect the company to buy up competitors or low-priced mining assets until coal prices start to rebound, he said.

 

“Right now, there are no tier-one assets on the market, because the people that have them, they’re not interested in selling at the bottom of the cycle,” he said.

 

 

Source: Bloomberg