Shares of Patriot Coal Corp. (NYSE: PCX) are up nearly 30% today and other coal companies are tagging along. James River Coal Co. (NASDAQ: JRCC) is up almost 9.5%, Arch Coal Inc. (NYSE: ACI) is up 6.4%, and Alpha Natural Resources Inc. (NYSE: ANR) is up 7.7%. That’s good news for investors, of course, but all are still well below -40% down year-to-date and down more than -70% for the past 12 months.
What appears to be the catalyst for the spike is a report from Bloomberg that demand for coal grew 3.3% last year and that coal exports to Europe rose 49% in the first quarter of 2012. This despite tough EU restrictions on carbon emissions, which are more honored in the breach than in the observance.
The other factor driving up demand for coal in Europe is the high price of natural gas. Virtually all the natural gas on the continent is imported, and most of that comes from Russia. Imported coal prices fell -26% in the past 12 months to reach $91/ton at major EU ports.
Natural gas in the EU costs about $13/thousand cubic feet, about 4x the domestic US price. A ton of imported coal costs about $91. It would require about 30,000 cubic feet of natural gas to produce the same amount of heat as one ton of coal. To generate as much energy as a ton of coal costing $91 would require $390 worth of natural gas.
Patriot, Arch Coal, Alpha, and James River all have substantial operations in Appalachia, where access to Atlantic ports is reasonably nearby to expedite shipments to Europe.
In addition to exports to Europe, there are a number of coal-watchers who think that the prices have hit a bottom and have no place to go but up. By itself that’s not going to make coal prices spike as they have today, but combined with the expected higher demand from Europe the news is good enough to pull the coal miners out of their doldrums.
And because Patriot has been hit the hardest by price declines, it makes sense that it should get the most benefit from the better news on coal. At least, that’s the theory.
Paul Ausick
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