Less Demand, Less Coal, Less Profit (BTU, ACI, CNX, MEE)

Peabody Energy Corporation (NYSE:BTU) yesterday reduced its production estimates for Wyoming’s Powder River Basin and for its Australian coal mining. The company said it has produced "in excess of 200 million tons" of coal in 2008, but expects [CORRECTION] US production in 2009 in the range of 190-195 million tons.

• When you graph the share prices of four leading coal companies, Peabody, Arch Coal Inc. (NYSE:ACI), CONSOL Energy Inc. (NYSE:CNX), and Massey Energy Company (NYSE:MEE), the lines look like exact copies of one another.

If Peabody’s looking at a 5% drop [Correction from improperly stating25% earlier] in production for 2009, what about the rest of the coalminers?

When Peabody reported third quarter results, the company raised EPS guidance for 2008 and doubled its stock buyback program. At the time, it called the Powder River Basin "the fastest-growing region for US coal demand."

Cuts to Powder River Basin production amount to about 10 million tons. Australian production of metallurgical coal is expected to drop by about 2 million tons. The company noted that US production is "fully-priced" (that is, contracted) for 2009.

Mr. Peabody’s coal company is not telling us something. The company admits that it could be off on its 2009 production. It cites "speed of recovery in global markets for electricity generation and steel" and the size and timing of "stimulus initiatives in the United States, China, and other nations."

Has anyone read a report that the 2009 markets will recover? That GDP in China, the US, and every where else is climbing, not falling? That the world will use more electricity and steel, not less? Didn’t think so.

Paul Ausick
January 8, 2009