Coal Stocks Rise on Peabody’s Warning

Alpha Natural Resources Inc. (NYSE: ANR) is up 4.4%, Walter Energy Inc. (NYSE: WLT) is up 3.6%, Arch Coal Inc. (NYSE: ACI) is up 1.9%, James River Coal Co. (NASDAQ: JRCC) is up 0.3%. Cloud Peak Energy Co. (NYSE: CLD) is today’s only loser, down 1.4%.

In its announcement today, Peabody’s CEO said:

We are seeing increased U.S. gas-to-coal switching given higher natural gas prices, and global seaborne coal markets are showing signs of improving next year. While the first quarter is challenged due to a combination of factors, we expect quarter-over-quarter improvement throughout the remainder of the year.

There’s the reason for investors enthusiasm today. Peabody thinks coal is coming back as a fuel source for electricity generation. That’s good news for coal miners — if it’s true, but inventories are still high, idled capacity can be brought back online quickly, regulation is getting tighter, and export demand may continue weak.

Peabody also said it would slash 2013 capital spending by half from 2012 levels. The company expects U.S. sales volumes will be somewhat lower next year, but Australian volumes are expected to be higher. There are a lot of moving parts in the coal industry, and a glitch in any one could bring the industry back down again.

Paul Ausick