Just Loving Coal is Not Enough

Following Governor Romney’s statement in Wednesday night’s presidential debate that, “I love coal,” coal stocks got a nice boost in yesterday’s trading, with shares rising nearly 12% at James River Coal Corp. (NASDAQ: JRCC) and nearly 8% at Arch Coal Inc. (NYSE: ACI). Other winners included Alpha Natural Resources (NYSE: ANR) up almost 7%, and CONSOL Energy Inc. (NYSE: CNX) up 5.6%. Peabody Energy Corp. (NYSE: BTU) and Walter Energy Inc. (NYSE: WLT) rose about 4%.

Now while it’s true that President Obama didn’t say that he loves coal on Wednesday night, the fact is that he does. Illinois is a coal state and Obama has a soft spot for big ideas like clean coal. So, apparently, does Governor Romney, even though Massachusetts is not a coal state.

The problem that both Obama and Romney face is that no matter how much they love coal, utility companies love natural gas more. It’s cheaper and cleaner and is likely to remain so, even if prices double from today’s level of around $3 per thousand cubic feet. That is likely to remain true even if Congress or the next President could roll back all the environmental regulations that currently hit hard on coal-fired power plants.

Until the U.S. runs out of cheap natural gas, coal miners face dim prospects on the domestic front. International sales won’t be enough to make up the revenues lost to natural gas. Any enthusiasm for coal stocks is likely to peter out as quickly as a political promise.

The Market Vectors Coal ETF (NYSEMKT: KOL) is up 0.75% in mid-afternoon trading today, at $23.96 in a 52-week range of $21.49 to $40.90. Of the coal mining stocks themselves, only James River has added to yesterday’s gains, up another 1.4% today to $3.00 in a 52-week range of $1.68 to $11.52. The others have given back anywhere from 2% to 4% of yesterday’s boost.

Paul Ausick