Peabody Energy Corporation (BTU), Alpha Natural Resources, Inc. (ANR): Is it Finally Time to Buy Coal Stocks?

Although Alliance Resource Partners, L.P. (NASDAQ:ARLP) and Cloud Peak Energy Inc. (NYSE:CLD) have fared better, no company is immune. I already mentioned the coking coal price. On the thermal side, U.S. exports, which had been strong, are now in a decline. There’s simply too much global supply from countries like Australia, Indonesia and Colombia.

Strong Prices in 2011 Won’t Cut it in 2014

If readers take one thing from this article, remember this. The strong coal prices of 2011, $70-$75 per ton for thermal coal in central Appalachia and $200-$225 per ton for coking coal, won’t be enough in 2014. Since then, two things have happened. Industry-wide production is down, meaning that per ton costs are up, while realized prices are down. Demand for coal in the U.S. is down and not expected to return to prior levels.

Therefore, the industry will need $75-$80 per ton thermal coal in central Appalachia and $250 per ton coking coal to thrive. Look at key industry input costs of oil and diesel; have they declined? No. How long will it take for coal prices to rebound to these higher levels? Likely not before 2015.

Conclusion

Coal stocks have taken yet another step down. Some suggest that all the bad news is out and that the coal stocks can’t go much lower, and that may be the case. But is it time to buy? No, not without some signs of improvement in fundamentals. Despite truly horrible sentiment and what may appear to be “cheap” stock prices, there’s no catalyst to buy anything in the sector.

Peter Epstein owns shares of Alliance Resource Partners. The Motley Fool has no position in any of the stocks mentioned. Peter is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Is it Finally Time to Buy Coal Stocks? originally appeared on Fool.com is written by Peter Epstein.

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