CHICAGO, March 17, 2011 /PRNewswire/ -- Today, Zacks
Equity Research discusses the Coal Industry, including Arch
Coal (NYSE: ACI), Walter Energy (NYSE: WLT), Alpha
Natural Resources (NYSE: ANR) and Patriot Coal (NYSE:
PCX).
(Logo:
http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
A synopsis of today's Industry Outlook is presented below. The
full article can be read at
http://www.zacks.com/stock/news/49167/Coal+Industry+Outlook+%96+March+2011
According to the EIA, 2011 coal consumption, coal production and
utility coal stockpiles in the U.S. are projected to be essentially
on par with 2010, due to the lower natural gas prices, which is a
major substitute for coal.
Industry reports indicate that utilities are not expected to
purchase significant amounts of coal for 2011 beyond what is
already contracted for. Utilities that have indicated an interest
in purchasing coal are doing so for delivery after 2011. Thus, the
U.S. growth is projected to resume in 2012, with the increased
consumption being matched with higher production, no way disrupting
the utility coal stockpile balance.
Not only the U.S., but also the emerging markets will continue
to demand thermal coal to power their growth, in our view. This
will definitely improve the demand for coal in the power sector,
despite all competition.
Rise in Steel Demand: Coal as a fuel source also contributes to
the production of steel. The demand for metallurgical coal (coking
coal), a key ingredient in the production of steel, has increased
from 2009 levels based on the recovery of the global steel
industry. The rise in demand for steel in China, followed by India, acted as a major driver for global
demand and influenced the pricing for coking coal in 2010. This was
also seconded by a recovering demand in the U.S. and Europe. The U.S. steel industry operated at
about a 70% utilization rate in 2010 compared to a 40% utilization
rate for most of 2009.
Metallurgical coal prices increased substantially in the first
half of 2010 and stabilized in the second half of the year at
prices approximately twice that of a year ago. Going forward, we
see the prices for metallurgical coal to remain strong based on the
overwhelming demand by steel makers across the world.
Starting from the latter part of December
2010 until recently, the coal industry experienced
significant supply disruptions due to floods in Australia, Columbia and Venezuela, and rail issues in South Africa. These disruptions have had a
significant impact on spot pricing of metallurgical coal and at
this time it is difficult to gauge how long supplies are going to
be curtailed and its impact it will have on metallurgical coal
pricing.
Nonetheless, we believe this constrained supply of metallurgical
coal is setting the stage for higher pricing in 2011. While the
supply remains tight, we believe metallurgical coal producers in
the U.S. can benefit from the increasing demand and high met coal
prices. We would thus recommend investing in met coal companies
like Arch Coal (NYSE: ACI), Walter Energy (NYSE:
WLT), Alpha Natural Resources (NYSE: ANR) and Patriot
Coal (NYSE: PCX).
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