Patriot Coal Falls Again (PCX, ACI, JRCC, ANR, BTU, WLT, CLD)

Shares of Patriot Coal Corp. (NYSE: PCX) are dropping like a rock again today on no specific news. Other coal miners are faring somewhat better, with Arch Coal Inc. (NYSE: ACI) up slightly, James River Coal Corp. (NASDAQ: JRCC) up 5.7%, Alpha Natural Resources Inc. (NYSE: ANR) up 3.6%, Peabody Energy Corp. (NYSE: BTU) up 0.6%, Walter Energy Inc. (NYSE: WLT) up nearly 2%, and Cloud Peak Energy Inc. (NYSE: CLD) up about 0.6%.

Patriot’s problem is the old real estate issue: location, location, location. The company’s operations are located in Appalachia, and demand for thermal coal from that region is soft and getting softer. Companies with operations in the Illinois and Powder River Basins are doing better because either domestic demand is better in the US heartland or exports to Asia are helping keep demand up.

Except for Alpha, which today settled a lawsuit related to water pollution in West Virginia, there is no news from any of these miners. The market appears to believe that coal mining stocks are nearing — or have reached — a bottom. But that’s not likely, mainly because domestic demand could still slide further, and not because of more fuel-switching to natural gas.

Most of the fuel-switching that is going to occur has already taken place. Demand is likely to fall as old power generation plants are shut down because it is too expensive to bring them into compliance with new clean air regulations. The plant shutdowns could hit Peabody, Arch, and Alpha the hardest, with Cloud Peak also at some risk. Production from mines in the Powder River Basin, where all these companies have significant operations, could fall as these power plants close.

Patriot Coal is down more than -11% today at $1.25 after setting a new 52-week low of $1.23. The previous range was $1.36-$24.99.

Paul Ausick