Amid increasing concerns about emissions and greenhouse gases, we have been noticing a clear shift in energy choice among utility operators in the United States. At present, natural gas and renewable energy are being preferred over coal for energy needs.
The U.S. Energy Information Administration (“EIA”) expects total U.S. coal production in 2020 to be 511 million short tons (MMst), indicating 194 MMst or a 28% decline from 2019. Per EIA, mitigation efforts related to the COVID-19 pandemic and reduced demand from the U.S. electric power sector amid low natural gas prices have contributed to mine idling and closures, which will result in a year-over-year decline in coal production in 2020. Per EIA, natural gas and renewable energy sources together will be used to generate 59% of electricity in the United States, suggesting growth from 54% in 2019. Coal usage in electricity generation will likely fall to 20% in 2020 from 24% in 2019.
Along with domestic consumption, EIA forecasts coal exports in 2020 to be 63.11 MMst, implying a decrease from 2019 levels of 92.9 MMst. This is reflective of the difficult situation that coal miners are presently going through due to serious challenges from natural gas as a viable energy source.
Some Positives for Coal in 2021
Not everything seems to be going wrong for coal. EIA expects 2021 coal production in the United States to touch 600 MMst, up 17.4% from expected 2020 levels. Per EIA, the increase in coal production can be attributed to higher natural gas prices in 2021 that will make coal more competitive in the U.S. electric power sector. No doubt, it is going to be a positive for coal miners as they are currently cutting down production, idling mines, lowering expenses and moving toward low-cost mines to cope up with the decline in coal demand and prices.
Last month, the U.S. Environmental Protection Agency (“EPA”) announced final revisions to specific effluent guidelines and standards for “steam electric” power plants. The 2020 Steam Electric Reconsideration Rule will aid the coal industry and save nearly $140 million annually for the U.S. power sector, while reducing pollution by nearly a million pound per year over the 2015 rule.
Per the new rule, coal-fired power plants that discharge bottom ash transport water or flue gas desulfurization wastewater may incur compliance costs under the 2020 final rule. EPA estimates that 75 plants may incur compliance costs under the final rule, in an industry population of 914 plants. We expect this development to aid the coal industry and create fresh domestic demand for coal from 2021 onward.
Stocks in Focus
Let us focus on a few stocks from the Zacks Coal Industry that have outperformed the industry and Zacks S&P 500 composite in the past three months. All the stocks presently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance (three months)
Bristol, TN-based Contura Energy, Inc. CTRA extracts, processes, and markets metallurgical as well as thermal coal to electric utilities, steel and coke producers, along with industrial customers in the United States. The Zacks Consensus Estimate for its 2021 earnings and revenues indicates a year-over-year rise of 111.4% and 26.8% respectively.
St Louis, MO-based Peabody Energy Corporation BTU engages in the coal mining business. Peabody Energy and Arch Coal Inc. have decided to form a joint venture by merging some of their most-productive coal mines in the Powder River Basin and Colorado. The Zacks Consensus Estimate for Peabody Energy’s 2021 earnings and revenues suggests a year-over-year rise of 96.1% and 13.8%, respectively.
Lisle, IL-based SunCoke Energy SXC operates as an independent producer of coke in the Americas and Brazil. The Zacks Consensus Estimate for its earnings and revenues implies a year-over-year rise of 580% and 0.2%, respectively.
Lexington, KY-based Ramaco Resources METC produces and sells metallurgical coal. The Zacks Consensus Estimate for its earnings and revenues points to a year-over-year rise of 716.7% and 34.5%, respectively.
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