CSX Corporation (CSX), Joy Global Inc. (JOY), Alliance Resource Partners, L.P. (ARLP): The Upside Of The “Unfavorable” Trends In Coal

While Joy Global Inc. (NYSE:JOY) notes that, “Lower pricing is making higher cost mines uneconomic and will result in closures that will rebalance the market,” that processes hasn’t started in earnest just yet. Expect weakness in CSX’s export coal volumes into 2014, with the second half of 2014 or early 2015 as a potential turning point.

Equipment sales will lag even more

Joy Global Inc. (NYSE:JOY), meanwhile, will have to wait longer for any improvement in its equipment sales to the coal industry, among other currently oversupplied commodity markets. Management summed it up nicely when it stated that until the coal market rebalances, “there is little incentive to invest in new mine capacity.” That’s true of virtually all of Joy’s end markets.

In fact, an uptick in capital spending may not take place until well after demand starts to outstrip supply to some extent. So even a nascent recovery in the U.S. coal industry won’t be enough to push capital spending higher. That’s why Joy Global Inc. (NYSE:JOY) is expecting weak sales through 2014. Investors should probably avoid the company until its end markets start to pick up. That said, watch U.S. coal capital spending for the first signs of a potential business turn.

An industry in flux

The coal industry is in a state of flux, and the impact extends beyond the miners. CSX’s coal business has seen a notable hit, for example, as have sales at mining equipment maker Joy Global. As coal markets around the world rebalance, however, look for the coal industry’s drag to start benefiting this duo. Continued strength in CSX’s domestic coal volumes will be among the first signs that things are moving in the right direction. And, if that’s true, Alliance Resource Partners, L.P. (NASDAQ:ARLP) will see continued improvement in its already impressive results.

The article The Upside Of The “Unfavorable” Trends In Coal originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Alliance Resource (NASDAQ:ARLP) Partners, L.P.. The Motley Fool owns shares of CSX.

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