Santa puts coal stocks in stockings for last time

Arch Resources

19/12/2023 15:17

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Robert Cyran
       NEW YORK, Dec 19 (Reuters Breakingviews) - Stocks of
coal companies are finding a reason this season. Investors brave
enough to pick up these fossil fuel discards have had an
extraordinary run recently, and their ability to generate black
ink is impressively bright in the immediate term. Snag is,
economics and politics are combining to push coal stocks into
Santa’s version of coal. 
    The U.S. produces about half the coal it did in 2008 and
nearly all of that fuel type used domestically is burned in
power plants. These are shutting down – about 40% of the
nation’s coal capacity has closed since 2011, and 40% of what
remained at the start of the year is set to close by 2030,
according to the Institute for Energy Economics and Financial
Analysis. 
    Nevertheless, firms like Peabody Energy  BTU.N , Arch
Resources  ARCH.N  and Consol Energy  CEIX.N  are doing better
than they have in years, thanks to overseas buyers who are
scooping up half or more of their supply. China and India now
account for around 70% of the world’s consumption, according to
the International Energy Agency. These nations’ growing demand
offset declines in Europe and the United States, causing global
demand to hit a record in 2023.
    The summit, however, has been reached. Clean energy is
becoming less expensive. Building unsubsidized solar and wind is
now often cheaper than running fully depreciated coal plants,
and the price of green energy should keep falling. While coal
will be slower to phase out in areas like steelmaking, total
global demand is set to shrink starting next year, forecasts the
IEA, and keep falling, as China’s demand has peaked. 
    Political agreements, like one signed at the recent COP28
summit, will accelerate the pace. Plus the amount of coal dug up
in China, India and Indonesia, the three biggest producing
nations, is growing according to the IEA. That poses perhaps a
bigger threat to U.S. exports.
    Stockholders in Peabody and Arch have seen their investments
more than double over the past two years, and Consol more than
quadruple. Still, these firms are all worth only about $9
billion in total. While they may throw off cash for some time,
prices and profit for commodity producers swing wildly downward
if there’s excess production. Coal stocks will leave an ugly
smudge on future holiday stockings.  
    Follow @rob_cyran on X

    CONTEXT NEWS 
    Representatives of nearly 200 countries attending the COP28
climate summit in Dubai agreed on Dec. 13 to transition away
from all fossil fuels in energy systems and accelerate action
this decade so as to achieve net zero carbon emissions by 2050.
It is the first time nations committed to move away from
polluting energy sources.
    The deal fell short of calling for a complete phasing out of
oil, gas, and coal.
    The International Energy Agency said on Dec. 15 it predicts
global coal demand will rise 1.4% in 2023 to exceed a record 8.5
billion tonnes. The agency estimates demand will fall 2.3% by
2026, the first consumption decline over a forecast period.

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Graphic: Coal waning    https://tmsnrt.rs/3GF0B55
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 (Editing by Lauren Silva Laughlin and Sharon Lam)
 ((For previous columns by the author, Reuters customers can
click on  CYRAN/ 
robert.cyran@thomsonreuters.com; Reuters Messaging:
robert.cyran.thomsonreuters.com@reuters.net))