Rekindling Coal


In the latest sign of a market recovery, better-than-expected economic news from China, raised hopes on Monday that the worst of the global recession might be over. Brokerage CLSA said its China Purchasing Managers' Index (PMI), a measure of manufacturing activity, rose to a nine-month high in April to 50.1 from 44.8 - a level above 50 indicates expansion.

On the news, the coal group trended higher, with companies such as Foundation Coal jumping over 11%. "Coal prices as a whole are due to rise because they have been beaten down so much over concerns over future demand, that everyone stands to gain from an uptick," said Mark Hansen, Director of Trading at CPM Group, during an interview on Squawk Box.

A separate report from Goldman Sachs released on Monday, showed that the investment firm raised its coverage view on coal companies to attractive from neutral. Goldman added Massey Energy to its conviction buy-list, lifting the rating on the stock to a buy from neutral. Shares of Massey Energy, a leading producer of Central Appalachian coal in the US, are up over 18% during today's trading session.

The news emerges as coal prices are down nearly 31% in 2009 alone, and about 54% from a year ago. If coal prices are due for a rebound, some of the companies that may see their shares gain from the news include:

  • Arch Coal is one of the nation's leading coal producers, and provides about 12% of America’s coal supply. Arch Coal shares are up ~7% this year.
  • Peabody Energy is the world’s largest private-sector coal company and generates about 10% of America’s electricity. Peabody Energy shares are up ~41% YTD.
  • Massey Energy is the fourth largest producer of Central Appalachian coal in the United States. Massey Energy shares are up ~57% YTD.
  • Alpha Natural Resources is another leading Central Appalachian coal producer. ANR shares are up ~58% in 2009.
  • Consol Energy is a leading coal supplier in the US operating eighteen mining complexes throughout six states. Consol Energy shares are up ~31%.
  • James River Coal Company is the sixth largest Central Appalachian coal producer in the US. James River Coal shares have gained ~37% YTD.
  • Patriot Coal is a leading provider of coal in the Eastern United States. The company's shares are up ~53% this year.
  • Foundation Coal Holdings is the a leading coal producer in the US. Foundation Coal shares are up ~44%.
  • Penn Virginia Resources manages coal properties and enters into long-term leases with third party miners. The company's shares are up ~21% YTD.
  • Alliance Resource Partners produces and markets coal to utility and industrial users in the United States. So far this year, the company's shares are up ~35%.
  • International Coal Group produces, processes, and sells steam and metallurgical coal. International Coal shares are up ~33% in 2009.

Coal in the United States:

The United States holds the world’s largest coal reserves. Coal generates more than half of the nation's energy, and is expected to remain a major energy source for several years to come. The US uses more than 95% of its coal for energy generation, while the remaining amount is used in industrial production or exported.

Thirty-eight states engage in mining practices with Wyoming, West Virginia, and Kentucky mining the most coal. One third of US coal is derived from the Central Appalachian region.

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