Coal Exports Rose, But Low Domestic Prices Hurt (BTU, ACI, ANR, CLD)

US coal miners exported 107 million tons of coal in 2011, most of it to Asia. That’s nearly double total US coal exports just five years earlier, and the shipments brought in about $16 billion in revenue.

Demand from China, South Korea, Japan, and India rose rapidly last year and coal companies believe this trend will continue. Peabody Energy Corp. (NYSE: BTU), Arch Coal Inc. (NYSE: ACI), Alpha Natural Resources Inc. (NYSE: ANR), and Cloud Peak Energy Inc. (NYSE: CLD) all experienced export gains.

According to an AP report, Arch Coal believes that US coal exports could more than double to 245 million tons by 2015 if export terminals can be expanded or built to handle the additional load. The US Department of Energy projects a slight decline in coal exports for the next two years, and then slow growth to about 130 million tons by 2030.

The prices for exported coal are high and may rise, but the problem the coal companies face is that only about 10% of mined coal is exported. The US produced 1.1 billion tons of coal in 2011, and 90% was sold domestically. The domestic competition is natural gas, which has been trading at historic lows and now hovers near $2/thousand cubic feet. An energy-equivalent amount of coal is selling for around $2.50/ton, enabling plants capable of fuel-switching to do so.

While getting a premium price for 10% of your product is a good thing, it’s not much help when 90% of your product is being sold at bargain prices.

Expect to hear more about export terminal expansion and environmentalists’ challenges to US coal exports that sound very similar to arguments against the Keystone XL pipeline. The basis of the argument is that pollution somewhere is pollution everywhere — and coal is an easy target.

Paul Ausick