Hello again, readers! On October 27th, I made the call that anyone with coal stocks should sell them, to avoid the beating that was going to come from Obama's re-election, which I pegged at 70% likely and thus not worth betting against by being long coal. Coal went up a little bit in anticipation of a Romney victory, and then it went down. A lot. I prepared the chart below several days ago. Since then, even the prices of November 9th are looking pretty great, and coal shares continue to fall.
Coal had many things going against it before today, which have been highlighted in a recent article by Paulo Santos. It is uncertain exactly how negative of a factor the second Obama presidency will be for coal. Many believe, however, that the recent selloff in coal stocks is overstretched, because natural gas prices have been rising. Well, today that thesis looks much less compelling, given this article released Wednesday on Bloomberg. It suggests that natural gas prices will remain low into the foreseeable future due to production increases, and the recent rally will reverse itself. Furthermore, it also claims that the current natural gas futures overstate the actual price by about $0.50 per mmBTU. This spells continued pain for all coal producers, and likely eventual failure for most CAPP coal producers if things remain as they are, as they simply cannot compete at such prices.
Combined with the possibility of a carbon tax levied on coal, and the falling macro picture, I see little to be gained from long positions in coal now, and much that can be lost. If for some reason you want to be long coal now, I consider Peabody Energy (BTU), Cloud Peak Energy (CLD), Consol Energy (CNX), and Alliance Resource Partners (ARLP) as companies that are likely to survive anything but a high overt carbon tax or similar governmental measures. Peabody because it has half its assets outside the US and produces in the PRB, Cloud because it produces in the PRB, Consol and Alliance because they sit at the lowest positions on the cost curve in their basins. The prospect of other coal firms making it through President Obama's second term does not seem nearly as certain to me now, given the situation with natural gas and given every possibility that coal will continue to be squeezed by administration policies.
This information in this article also applies to
Arch Coal (ACI)
Alpha Natural Resources (ANR)
James River Coal Company (JRCC)
Natural Resource Partners (NRP)
And all other US based coal firms.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.