Coal stocks are soaring, but for how long?
Its certain coal companies will never revert to Blue Chip status, but recent events in the energy sector are pushing their values to levels not seen in years.
In a flurry of earnings reports, the coal companies are reporting huge profits and beating Wall Street expectations. Frustrated investors are happy to see some returns after tax quarters without payment.
To understand the pressure on the coal companies, one need only look at the last few years. Governments pushed green energy, then the pandemic struck, resulting in lower demand for fossil fuels. The banks were pulling out of the coal companies and everyone except the die-hard investors walked away.
But that has changed in recent months. The world is slowly reopening and hungry for energy, including coal and other fossil fuels, which has benefited the bottom line of coal companies.
Six years ago, headlines made headlines with coal companies seeking Chapter 11 protection, slashed pensions and closed mines. Headlines now reflect positive earnings, and at least one company, Alliance Resource, said it plans to hire at its mines in the Appalachian Basin to meet demand.
The nation’s largest coal company, Peabody Energy, is expected to release its third quarter earnings report on Thursday, October 28. However, last week its stock jumped 20% after reported sales of $ 900 million. (£ 655.51 million), its highest in seven quarters.
In 2018, Peabody shares peaked at $ 42 and remained down. At its lowest level last year, it traded at 80 cents when a global recession dampened demand for electric utilities. On Monday afternoon, it was trading at $ 14.13.
On Monday, October 25, Alliance Resource reported revenue up 16.8% to $ 415.4 million, up sharply from Q3 2020, largely due to stronger sales and higher prices.
Alliance’s stock history is similar to Peabody’s. At the start of 2018, it was trading above $ 20 a share, but during the pandemic, prices fell to $ 2.68. Now, on Monday afternoon, it’s $ 12.35.
In the coming weeks, Consol Energy, Ramaco Resources and Arch Resources are expected to release their third quarter earnings reports. Industry insiders told Capital.com they expect strong growth.
Stocks go up
So what is it that drives stocks up? Some reasons include its short-term price advantage as a source of power generation, growing demand for coal in China, and a Democrat from a coal-producing state, Joe Manchin of West Virginia, who has challenged the program. clean energy from President Joe Biden.
With the US Senate currently divided by parties, Senator Manchin has great influence over legislation.
When the global economy began to emerge from the pandemic, it discovered a severe energy shortage. Today, China and Europe lack energy.
At home, natural gas has always been a bargain and plentiful. Not so long ago, a dime over $ 4 for a metric million british thermal unit (MMBtu) has been a cause for celebration in the industry. Now, with December 2021 futures at $ 5.90, cheaper alternatives, coal and oil, are being sought for power generation.
China is the unknown. The United States is seeing an increase in its exports to China as it depends on black diamonds to generate electricity to supply electricity to the most populous country in the world. Yet the country has rationed electricity and even slowed industrial production amid its coal supply problems.
Last week, the US Energy Information Administration declared in 2021, “the annual production of coal-fired electricity in the United States will increase for the first time since 2014”. However, he ultimately concludes that the increase will go away.
From the coalfields of West Virginia to those of Indiana, miners and their families will say the industry is party or famine, boom or bust.
The history of coal is filled with ups and downs in prices and production.
When this latest energy crisis ends, there is a risk that coal will lose shares in favor of renewables, be it solar, wind or some other source.
Read more: Peabody Energy shares heat up over preliminary results
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