Steep slump in coal stocks, as investors bail, began before CO2 concerns

By Benjamin Hulac | 06/11/2015 08:12 AM EDT

Executives and workers at Walter Energy Inc. watched Monday as their company’s share price lost 30 percent of its value in a day, closing at 30 cents amid speculation of an impending bankruptcy filing.

It’s also one of several companies, including Arch Coal Inc. and Alpha Natural Resources Inc., that are at risk of being booted from the New York Stock Exchange if their stock price doesn’t promptly climb above $1. And on Monday, Peabody Energy Corp. said it would let 250 workers go.

Economic struggles like these are not temporary ailments but are ingrained within the U.S. coal sector, said Luke Sussams, a researcher at the Carbon Tracker Initiative (CTI), a nonprofit think tank that studies climate change and its connections to financial risk.


In the last five years, the MSCI World Index, a broad financial barometer for the world’s stock markets’ performance, has increased 44 percent in value.

During that window, the global coal sector has given away 43 percent of its value. The American coal market value — viewed through the Dow Jones U.S. Total Market Coal Sector Index — has been particularly dismal, shrinking by 76 percent since 2010.

Domestic use of thermal coal peaked in the United States in 2007 and, to a lesser extent, again in 2011. But competition from natural gas and compliance pressure from seven federal regulations have squeezed the industry, a March report from CTI found, forcing U.S. power operators to retire coal-fired facilities.

"Coal projects are much more capital-intense than natural gas" alternatives, said Andrew Grant, a financial analyst also at CTI.

But only two of the seven measures, all of which have been unveiled since 2008, focused specifically on climate change mitigation, indicating that government action other than efforts to slash greenhouse gases is also to blame for the industry’s woes.

The downward pressure within the U.S. coal business in connection with the federal non-climate policies indicates that the "change is structural rather than cyclical," Sussams said.

Diversify or die?

Foreign and domestic coal suppliers took a hit during the worldwide financial turmoil and aftermath of the 2008 crisis. Peabody, worth more than $70 a share four years ago, has since lost about 95 percent of its market value. It closed for a little more than $3 per share yesterday.

Investors and energy firms that want to stay afloat should remember just how swiftly a sector can crash, Sussams said.

"This is a lesson that should be learned and internalized in coal sectors around the world," he added.

Two traditional U.S. coal producers — CONSOL Energy Inc. and Alliance Resource Partners LP — have managed to outperform their peers recently after diversifying their corporate structure, Grant said.

As a more polluting fuel source than oil and, by a wider margin, natural gas, coal has come under pressure from investors looking for less-polluting homes for their money. Many of the biggest mainstream financial groups now offer investment tools to block, or screen for, polluting corporations.

"As the most carbon-intensive of the fossil fuels, the greatest pressure is on coal," Thomas Kuh, executive director and head of ESG indices at MSCI, the investment services firm, said yesterday on a conference call.

"I think we’re going to see more and more activity in this regard in the coming months," he said.

Coal use and production in China, long the nation with the greatest level of consumption, dropped about 3 percent in 2014, marking the first decline in the demand for and output of coal for the country in 14 years.