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Peabody Energy Corporation (BTU), Alpha Natural Resources, Inc. (ANR), Arch Coal Inc (ACI): King Coal Losing Grip on Its Crown

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Upton Sinclair coined the phrase ‘King Coal’ in a novel by that name published nearly 100 years ago. Despite protestations from a few contrarians, though, it appears the long-running reign of this once-dominant industry, along with the many companies under its umbrella, is under serious pressure.

And the latest news only underscores how perilous an investment in this sector could be over the next year or longer.

Coal remains the largest private-sector provider of jobs in the U.S. and is still the country’s dominant power source. With energy needs growing rapidly in emerging countries like China, it remains in significant demand worldwide as well.

But with domestic utilities turning more to natural gas and environmental opponents working to keep more of the mineral in the ground, the industry continues losing more and more of its long-held grip. U.S. coal consumption has dropped 24% since 2007 as utilities switched to the lower priced and cleaner-burning alternativefor instance, and new federal clean-air regulations led to the closing of a record 57 coal-fired power plants in 2012 alone — with another 61 set to shut down by 2015, according to the Energy Information Administration.

Peabody Energy Corporation (NYSE:BTU)

Recent reports indicate softening demand, and the resulting lower prices have spread worldwide and will continue through 2014. Here’s a look at the producers and suppliers most likely to take a hit from the ongoing downturn.

The producers

Top tier coal companies such as Peabody Energy Corporation (NYSE:BTU)Alpha Natural Resources, Inc. (NYSE:ANR) and Arch Coal Inc (NYSE:ACI) have all been struggling with the lower demand and weaker prices. They cut overall production last year to the lowest level in two decades and reduced costs along with it to help them weather the building storm.

But the bleeding hasn’t stopped. The Colorado Mining Association, for example, announced in late August that coal production in the state was down 19% during the first half of this year compared to 2012 — which was higher than 2011 but still down nearly 25% from 2004.

Five of Colorado’s nine operating mines are reporting year-over-year cuts in production, the group said, including Arch Coal Inc (NYSE:ACI)’s West Elk Mine near the town of Somerset. According to that company, it reduced output there by almost 25%, part of a nationwide effort to balance volume levels with market conditions.

Peabody Energy Corporation (NYSE:BTU), the top U.S. producer by revenue, is a leader among its peers in trying to supplement the loss of U.S. business with global activity. It has an operation in Australia from which it ships coal to Asian markets and has been expanding its export infrastructure in the U.S. No. 3 producer Alpha Natural Resources, Inc. (NYSE:ANR) says it now exports a fifth of its production and has become the largest U.S. exporter of metallurgical coal, a primary component in steel making. And No. 4 producer Arch Coal Inc (NYSE:ACI) is also expanding its export operations and has opened an office in Beijing to facilitate the process.;

The idea behind these moves is solid, but it certainly won’t be a cure-all. China’s economy has been slowing, and according to the U.S. Census Bureau coal exports there have been following suit.

The Suppliers

Coal production is a massive operation that requires a lot of very expensive machinery. For several years, a global development boom — again led by emerging nations like China — pushed the mining industry into something insiders called a “supercycle.” The appetite for newer and better equipment was ravenous and the companies that produce it, led by Caterpillar Inc. (NYSE:CAT) and Joy Global Inc. (NYSE:JOY), reaped the rewards. They also piled on costly acquisitions and created complicated joint ventures overseas that dramatically expanded their depth as well as their reach.

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