Santa puts coal stocks in stockings for last time

NEW YORK, Dec 19 – 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 US 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), Arch Resources (ARCH), and Consol Energy (CEIX) 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 US 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 USD 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.

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 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.

(Editing by Lauren Silva Laughlin and Sharon Lam)