U.S. Coal Production: What Investors Need to Know
by David Fessler, Investment U Senior Analyst
Tuesday, June 28, 2011: Issue #1544
Last week, I wrote about Indonesia’s booming thermal coal export business. It’s the largest exporter of thermal coal in the world, and business is booming, primarily due to demand from India and China.
It turns out the coal export business is just as good for another country, half a world away from Indonesia. I’m talking about the good ol’ U.S.A.
That’s right, coal exports are booming here, too. As you can see from the graph below, published by the EIA, coal export shipments are now at levels not seen in nearly two decades.
This past year, they’ve been on an absolute tear, up 49 percent for the first quarter of 2011 compared to a year ago…
The two-year statistics are just as good: The 26.6 million short tons exported in the first quarter were double the amount shipped in the same quarter of 2009.
Coking or metallurgical coal makes up 64 percent of U.S. exports. But that’s rapidly changing. Like Indonesia, the United States has experienced a tremendous increase in thermal or steam coal.
As you can see from the EIA graph below, in the first quarter of 2011 steam coal exports were up a whopping 160 percent compared to 2010. Coking coal was up a respectable 21 percent for the same period.
What’s going on here? As I’ve said countless times, with commodities, it’s all about supply and demand. In the case of coal, this year’s gains in the United States and elsewhere have come largely at the expense of Australia.
Flooding and typhoons that occurred between last November and this February shut down most of the coal mines in Queensland. The multiple disasters also disrupted rail service and damaged seaport coal-handling facilities.
That translated into an estimated 30-million-ton export shortfall from down under, and that was just from the first quarter. Dewatering the mines, and repairing the railroads and port facilities is ongoing.
Golden Opportunity for Two Big U.S. Coal Producers
Full mine production isn’t expected to resume until sometime in the third quarter of 2011. That means U.S. coal producers are stepping in to fill the gap. This is happening in the face of increasing coal demand from China and India. They’ll be burning coal for the next 100 years, and they can’t get enough of it.
As a result, U.S. producers can ship all they can mine. That’s been a boon to U.S. steam coal producer Arch Coal, Inc. (NYSE: ACI).
Here’s why I like Arch: The location of its mines and its easy access to port loading facilities give it a big advantage over some of its domestic competitors. It ships coal domestically and to customers on four continents globally.
Alpha Natural Resources, Inc. (NYSE: ANR) is another big U.S. coal producer that’s substantially ramped up its production and exports in response to Australia’s woes. Why do I like it? Simple: It has more export terminal capacity than any other U.S. producer.
It also happens to be the nation’s leading exporter of metallurgical coal, and the number three supplier in the world.
If you want to be invested in commodities, and you can get past the environmental guilt, you should definitely consider both of the above suppliers, particularly for the balance of 2011.
Good investing,
David Fessler
Any investment contains risk. Please see our disclaimer.
6 Responses to “U.S. Coal Production: What Investors Need to Know”
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David Fessler is the energy and infrastructure expert for Investment U.
It would be most interesting to have these stocks considered together with Walter Energy with respect to production, earnings, value and risk
Thank you,
Allan Hochman
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I never see references to the swap engineered by Pres. Clinton. While running for re-election, he was receiving funds from his friends in Indonesia. They happened to be among the leading providers of anthracite or metallurgic coal. Our greatest source of this type of coal was located in one of our mid-west states Kentucky, MO, OK, or Kansas.
As a favor to his Indonesian friends, Pres. Clinton ordered a swap of the coal fields with a portion of a national park. Of course, no mining would be permitted there. Bingo, no competition with his buddies, loss of jobs and income and outsources for us, but Slick Willy got re-elected.
These are the memories of an 88-year-old geezer, who happened to live in AR during Bill and Hilllary’s reign. The details may be murky, but the basic theme is true.
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Of course there is some mighty fine coal in the good old U.S.A. The Appalachian coal and the Wyoming coal are some of the world’s best…
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The tips given here seem cool! However we also need to look at mines in TETE mines in Mozambique. This is a coking coal reserve.A company to look at in particular is Beacon Hill resources BHR (AIM), B
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PCX is a great play because it is a takeover candidate. Expect that these will all trade sideways to down until labor day.
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Lots of coal talk these days! I hear about it all over the world!
Big Producers everywhere and lots of possibilities.
I have looked at American Power (AMPW) .. Alas.. down to very low levels now, but I guess timing is everything! Is the sun rising on Coal?
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