NEW YORK -- Shares of coal mining companies surged Thursday and Dahlman Rose & Co. predicted that demand may be on the rise from steel manufacturers in China.
Stocks have been lifted by rising natural gas prices, which competes with coal as an energy source. Utilities have shifted quickly over the past two years to natural gas in order to generate power, but with natural gas prices rising, and they rose again by 3 percent Thursday, many expect at least some shift back to coal.
And there are also some indications that Chinese spot steel margins will broaden on growing demand, according to Dahlman analyst Daniel W. Scott, which would require burning more metallurgical coal, used in the steel manufacturing process.
Implied Chinese spot steel margins have increased more than 30 percent since late July, Scott wrote. The move appeared to develop after iron ore and metallurgical, or met, coal prices fell in late July and August.
Chinese rebar prices began rising in early September, which led to a widening of implied spot steel margins, compared with average levels during 2012, the analyst said. As a result, iron ore prices have increased about 36 percent from 2012 lows.
Scott speculated that a similar move could occur in the met coal market. China imports about 15 percent of its met coal needs.
However, Scott said he expects coal companies to be cautious when they release third-quarter results. "If demand alone does not support higher prices, we would not rule out additional production curtailments," he wrote.
Prices for metallurgical coal have fallen as demand for steel has weakened in the slower global economy. The mining companies have curbed production and idled mines to control costs.
THE SHARES: In morning trading, shares of Arch Coal Inc. rose 69 cents, or 10.1 percent, to $7.55; Peabody Energy Corp. rose $1.92, or 8 percent, to $25.9 one and 5; Alpha Natural Resources Inc. was up 88 cents, or 12 percent, to $8.19 and Cliffs Natural Resources Inc. increased $1.17, or 2.9 percent, to $41.69.