Coal Stock : It’s been an incredible one for the price of coal and consequently the shares of coal mines. Alliance Resource Partners (ARLP 2.09 percent) has risen 92% since the close of 2021. Peabody Energy (BTU 1.29%) is up by 167 percent. Consol Energy (CEIX 1.84%) shares have gained to a record 214% to date. The rising costs of natural gas has forced electric utilities to look for more affordable fuel sources and coal is among them. According to the International Energy Agency estimates this year’s consumption of coal will roughly match the previous record.
The incredible strength of these stocks will likely be only temporary. Investors who happen to own any of these stocks could consider taking them off sooner rather than later, since the foundation of this bullishness will not last long.
Coal is only a temporary, emergency solution
It’s a difficult thing to accomplish. The standard advice (as as well as intuition) recommends sticking with your top performers as so long as they’re making advancement. Stocks such as Peabody as well as Consol Energy are still doing well.
This is, however, one of those instances when the smart-money decision is more proactive than reacting. The price correction of coal is coming and, once it begins to fade coal mining stocks could increase in a dramatic way without any warning.
Fitch Ratings exposes the bad news. The revision it made last month to Fitch’s long-term cost of coal forecast increased them all over the prior outlook Fitch’s forecasted prices remain below current levels. This is the same with the coking coal that is used to make steel just as the the thermal coal used to produce electricity. Have a look.
And Fitch isn’t the only one looking forward to an abrupt end to the coal craze. A month ago the Institute for Energy Economics and Financial Analysis released a dire outlook for Australia’s coal mining industry. The industry is a major supplier to Japan, China, South Korea as well as Taiwan as well as Taiwan. All of these are among the world’s most frequent users of coal and all of which depend heavily on the production of Australia. In spite of the high demand currently according to the coal analysts of the institute Simon Nicholas and Andrew Gorringe assert that “In the future the shift of Asian countries towards a greater dependence on renewable energy as well as domestic coal will cause the volumes in Australian thermal coal imports decrease substantially.” Nicholas and Gorringe also add that “This event is beyond the government’s control. Australian states and federal governments.”
This could be particularly difficult for Peabody because a significant portion of its mining operations are in Australia.
It’s a proxy for entire coal industry. Wood Mackenzie analysts Adam Woods also commented last month about the current price of coal (in the context of the inevitable widespread adoption to renewable energies): “We believe that this will be a immediate event, and we don’t see any companies making large investments to improve the coal infrastructure, or even long-term coal production.”
To that end, take be aware that, while they remain historically high, prices for thermal coal have slowed significantly from the peak of July and September within the past few days.
