"You would think the coal industry would be toast," Cramer told viewers, "given that China, where most of the demand was coming from, has put the brakes on its economy and in this country we didn't commission a single new coal plant in 2009."
Yet, the coal company Peabody Energy was very bullish when it reported last Tuesday. Then on Friday Arch Coal said things weren’t so “hot.” So, which is it?
Cramer thought this sounded similar to what he heard two weeks ago when the rails reported, and CSX painted a pretty bleak picture of the coal market, while Union Pacific gave us a much more rosy one. Coal represents about 45% of rail freight, so these companies understand the business. But, it’s not “one size of coal fits all.” There’s coal for utilities, metallurgical coal for making steel, and export and domestic coal.
Peabody Energy is banking on China. Numerous reports say that the Chinese government is shutting down its economy to stop the financial bubble from bursting, even if the coal industry hasn’t recognized it.
Arch Coal, on the other hand, seems to see the writing on the wall. ACI, that gets the majority of its sales from domestic utility customers, missed Wall Street’s consensus earnings' estimates and lowered guidance. The tone on its conference call was much more muted.
Cramer told viewers that a coal comeback might be possible with the President's favoritism, coupled with massive subsidies to attempt the impossible, clean coal through carbon capture. For Peabody to work, there has to be a reversal of China’s no-lending policies. With a slowdown in China and the lack of new coal plants in the U.S., Cramer believes coal use will be down in 2010, and investors should sell these stocks. Right now Wall Street’s earnings estimates for 2010 are higher than 2009, something that Cramer thinks is wrong. And this makes BTU and ACT both very dangerous because those estimates need to come down and stocks prices will come down with them.
Bottom line: Cramer told viewers that without China and the new U.S. power plants, "This industry’s dead for now."
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