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Met coal slide to hurt Alpha Natural, Walter Energy, Citi says

  • The price for met coal used to make steel has dropped to $125/ton from an already-low $132/ton, and Citigroup’s Brian Yu thinks Alpha Natural Resources (ANR) and Walter Energy (WLT) stand to get hurt most among coal producers while Alliance Resource Partners (ARLP) and Peabody Energy (BTU) can best withstand the slide.
  • Citi retains its Sell rating on ANR because of several marginal mines that risk closure in a low commodity price environment and from over-aggressive consensus estimates; the firm cuts its WLT 12-month target price to $14 from $17.50 given the multiple compression impact from met pricing.
  • Meanwhile, Nomura prefers Consol Energy (CNX) and raises its 2014 EPS estimate to account for high gas production growth and upside from improved unit costs and gas price upside.
Comments (20)
  • Stone Fox Capital
    , contributor
    Comments (6173) | Send Message
     
    typical cut at the bottom... you can't discuss the coal stocks other than WLT and ignore nat gas prices above $5. Its a tradeoff at this point.
    27 Jan, 02:35 PM Reply Like
  • sph0308
    , contributor
    Comments (67) | Send Message
     
    So ANR is trading at $5.75 ish...Citi's price target is $14 and they rate the stock a sell ? If the stock really can reach $14 per share within the next 12 months and I can buy it at less than $6 per share and have a 3 bagger...that rates a buy in my books or am I missing something ?
    27 Jan, 03:40 PM Reply Like
  • slash32is4
    , contributor
    Comments (131) | Send Message
     
    the $14 price target is for WLT
    27 Jan, 04:02 PM Reply Like
  • senidr
    , contributor
    Comment (1) | Send Message
     
    wow another on purpose downgrade, creating opportunity
    27 Jan, 05:29 PM Reply Like
  • benitus
    , contributor
    Comments (1938) | Send Message
     
    $14 is a good price for WLT at this time when all energy stocks are down. It has come down because everyone else is also coming down. The good thing is that it didn't crash (self consolation). When energy stocks come back up again, it should go above $14 easily.

     

    BTW, if the price for met coal is down, that should stimulate demand from Chinese steel producers regardless of what others may say about the Chinese economy. The bottomline is that the Chinese is always on the market to purchase raw materials, so it's either they buy more or they buy less, depending on the price of met coal. That should be good for WLT.
    27 Jan, 06:10 PM Reply Like
  • wil3714
    , contributor
    Comments (1909) | Send Message
     
    Its the production of steel but the demand for steel. With the price of coal declining it shows demand is weak
    28 Jan, 05:14 AM Reply Like
  • benitus
    , contributor
    Comments (1938) | Send Message
     
    wil3714......there's always demand for Chinese steel. It's only a question of price. If they get their raw materials cheaply, like coke (coal minus the methane gas) and iron ore, then they can sell their steel cheaper and up goes the demand. The domestic demand is unsatiable, just as in east asia. It's the traders and brokers who are manipulating the price of coal, which remains a cheap source of energy.
    28 Jan, 08:07 AM Reply Like
  • wil3714
    , contributor
    Comments (1909) | Send Message
     
    I dont buy it, cost can be lowered but for how long. You cant price steel by your cost of production but by demand for the product. Supply and demand trumps all. So what if energy costs are lower its not going to last. If demand is so great, then prices for steel would be sky high. Who are they selling it to? if things are so great then coal prices would be high too. Coal is weak tells me demand is low or natgas is being used instead. But in China natgas isnt efficient so its coal thats weak
    28 Jan, 08:30 AM Reply Like
  • benitus
    , contributor
    Comments (1938) | Send Message
     
    wil3714....the Chinese domestic market doesn't behave like the rest of the world but I do know that the demand is always there. If the price is high, they buy less and build less and vice-versa. Yes, weak energy prices do reduce demand for coal, just as natural gas and crude will weaken as well. What I do know is that any analyst can use any statistics to justify any position they wish. I used to write reports for my clients and I can choose which side of the mirror to look at. As for WLT, it's fundamentally strong and the current downturn is due to market downturn and price manipulation by big players, just like most popular stocks. When the market outlook is good, the price of WLT will rise with other stocks. BTW, China's insatiable thirst for energy has actually increased demand for coal because most of their infrastructure is still powered by coal, so China may have increased its production of coal, which has led to decreased demand for overseas coal.
    28 Jan, 09:16 AM Reply Like
  • wil3714
    , contributor
    Comments (1909) | Send Message
     
    Your wrong on energy prices, coal is the lowest vs crude, natgas, hydro, geothermal, solar, or wind. Maybe back in 2011 when infrastructure projects were going off the hook, you could see major projects everywhere but not now with inflation fears. you cant see that hyper spending.

     

    Coal has been weak for years, wheres the restocking? Go ask BTU, ANR, CLF, ACI, CNX. We even got fears from CAT which is highly tailored toward mining of any commodity especially related toward coal. Even emerging markets were fearful.
    28 Jan, 09:56 AM Reply Like
  • benitus
    , contributor
    Comments (1938) | Send Message
     
    wil3714....you may be right. There's no point to prove that I'm wrong. Everyone is entitled to their own opinion. I say what I know and you say what you think. That's fine with me. All I can say is that WLT is not weakened by talk of lower coal prices but it's indeed weakened by weak market sentiment and short-selling. It's come back a lot today (does that mean that demand for coal has suddenly gone up? obviously not) and it's anybody's guess how fast it will recover, as it may take at least a month (or maybe three months) to get back above $14, which I think it will.
    28 Jan, 11:37 AM Reply Like
  • wil3714
    , contributor
    Comments (1909) | Send Message
     
    My idea is based off theses companies' comments This is basically fact and not the shorts your claiming. Shorts only added 2M shares which isnt enough of daily volume to indicate shorts are driving shares lower. WLT maybe up on CLF talk of a breakup. WLT doesnt have the time to wait for prices to incease to more profitable levels since it has a high debt level.
    28 Jan, 09:36 PM Reply Like
  • benitus
    , contributor
    Comments (1938) | Send Message
     
    wil3714.....thank you so much for your clarification but I do stand by my own convictions, however far fetched they may be, because I am making money from trading WLT stock (not investing).
    29 Jan, 06:53 AM Reply Like
  • wil3714
    , contributor
    Comments (1909) | Send Message
     
    Who is going to consume all this steel? I'm saying the selloff was due to global issues which has been founded.
    29 Jan, 11:45 AM Reply Like
  • benitus
    , contributor
    Comments (1938) | Send Message
     
    I was referring to domestic demand as well as ongoing demand in asia picking up the slack in international orders. Domestic demand is elastic. If prices are too high, demand will slow down, and vice-versa. Anyway, the issue is not just on met coal but also coal for power generation.
    30 Jan, 08:17 AM Reply Like
  • wil3714
    , contributor
    Comments (1909) | Send Message
     
    Isnt that priced in? Good thing is that restocking has picked up but that too can hit equilibrium. Waiting for mining to pick up but dont know when that happens.
    30 Jan, 09:27 AM Reply Like
  • benitus
    , contributor
    Comments (1938) | Send Message
     
    You may wish to know that I'm heavily long on WLT but I've been averaging down as the price moves down, so I'm good. Eventually, WLT will appreciate again, maybe not in the near-future, regardless of demand for coal or steel. Like I said, it has been artificially depressed by pessimists, who will get burned if they don't back off.
    30 Jan, 04:25 PM Reply Like
  • wil3714
    , contributor
    Comments (1909) | Send Message
     
    market rallied huge today yet WLT is down and on what?
    30 Jan, 07:58 PM Reply Like
  • whatsupmandude
    , contributor
    Comments (7) | Send Message
     
    Although the drop in met coal is hurting coal stocks like ACI, ANR, NRP, etc, I think it's a matter of time before these stocks to go back to early 2012 level, perhaps a lot higher. It may take a year or two, but I am guessing with the decline in met coal price, many Australian, Brazil, and the US coal exporters will go bankrupt since investors/lenders can't recoup returns on their investments. But once the supply dies out (after many going bankrupt), the price of coal will rise again (I don't think demand of coal is EVER going to go away). And so will the coal stocks.
    28 Jan, 08:32 PM Reply Like
  • benitus
    , contributor
    Comments (1938) | Send Message
     
    Well said, my friend, whatsupmandude. Couldn't put it any better. But I do believe the price of coke (met coal) will recover within a year. In the meantime, the price of strongly-supported stocks like WLT will recover to a more reasonable level, as it tried to do today, and I'm pretty sure that it will eventually recover above $14, unless the general market collapses.
    28 Jan, 09:06 PM Reply Like
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