BHP Billiton Limited (ADR) (BHP), Peabody Energy Corporation (BTU), Alpha Natural Resources, Inc. (ANR): Three Miners Readying For Steel’s Rebound

Metallurgical coal is used in the steel making process and although prices are weak today, demand is set to increase over the long term. That should be a boon to BHP Billiton Limited (ADR) (NYSE:BHP), Peabody Energy Corporation (NYSE:BTU), and struggling Alpha Natural Resources, Inc. (NYSE:ANR).

Demand for steel
Iron ore and coal miner BHP Billiton Limited (ADR) (NYSE:BHP) is projecting steel demand to continue increasing through 2030 because of the population shift in emerging economies from rural areas to cities. That’s been a big theme in China, where steel production increased at an annual rate of about 15% during the first decade of this century. That said, BHP Billiton Limited (ADR) (NYSE:BHP) is looking for China’s production growth to moderate to an annual rate of a little under 3% through 2030.

That’s reasonable as the country has started to mature. In fact the slowing economy in China has already led to a notable drop in steel prices since supply has gotten ahead of demand. However, the rest of the world is expected to pick up some of that slack, with the average growth rate in demand increasing from under 1% between 2000 and 2010 to just over 3% through 2030. While the heady days of steel appear to be behind us, slow but steady growth looks to be ahead.

That won’t lead to massive price increases for iron ore or met coal companies, but once supply and demand balance out, it should lead to improving business fundamentals. BHP Billiton Limited (ADR) (NYSE:BHP), which also pulls oil, natural gas, copper, among other things out of the ground, is well positioned to benefit from a long-term increase in steel demand since it’s a world leader in both iron ore and met coal. Moreover, it has a globally diversified business, so it can sell into just about any market.

The company just reported particularly weak results for fiscal 2013, however, because commodity prices have been generally weak. That said, despite revenues being down nearly 9% and profits down nearly 30%, the company still posted earnings of over $2 a share. And that’s in a bad market environment.

With a renewed focus on reducing costs and a token dividend increase, BHP Billiton Limited (ADR) (NYSE:BHP) might be of interest to investors looking for a diversified miner. And with a dividend yield around 3.6%, it will pay investors to wait for a turnaround.

More coal, but less risk?
For those seeking a more focused play, Peabody Energy Corporation (NYSE:BTU) might be a good alternative. Although the company only mines for coal, it has a global footprint via its large Australian operations. Australia, which accounts for about 50% of the company’s top line, sells met coal and thermal coal into Asia, benefiting from the country’s close proximity to the region.

Although lower coal prices forced BHP Billiton Limited (ADR) (NYSE:BHP) to write down the value of some of its Australian assets, it was a relatively small portion, around 10%, of its investment in the region over the past decade. One of the world’s largest met coal providers, Peabody Energy Corporation (NYSE:BTU) is financially strong and should have no problem surviving the current industry rationalization.