By Sarfaraz A. Khan. Research Asst. Adnan Mushtaq
Despite the weakness in the sector, coal producer Consol Energy (NYSE:CNX) has been holding up well due, in part, to the company's expansion into natural gas exploration and production.Over the last 52-weeks, coal producers such as Peabody Energy (NYSE:BTU) and Alpha Natural Resources (NYSE:ANR) have fallen by over 60%. During this period, the Market Vectors Coal ETF (NYSEARCA:KOL) has dropped by 23%, but Consol Energy has fallen by 17%.
The weakness in the international oil prices can help the coal miners, as oil is extensively used during mining operations, particularly during open-pit mining. The 50% drop in oil prices over the last six months will allow the miners to reduce their costs. This, however, won't solve the problem of fundamental weakness in coal markets.
The latest figures from the U.S. Energy Information Administration (NYSEMKT:EIA) shows an increase in thermal coal prices in the Eastern U.S. and a drop in the Western U.S. in 2014. However, overall, the total consumption of coal in the U.S. for electricity generation rose by just 1% in the first 11-months of 2014 as compared to 2013. This modest increase was met by 0.9% drop in demand, thanks to 17% drop in exports. The dip in exports was caused by weakness in Asia and Europe, tumbling coal prices in international markets and excessive supplies from coal producing countries - such as Australia and Indonesia. Moreover, the U.S. and Chinese governments have been clamping down on thermal coal consumption for power generation to reduce …. Read full article at Seeking Alpha.