Peabody Energy Corporation (BTU), Alpha Natural Resources, Inc. (ANR), Yanzhou Coal Mining Co Ltd (ADR) (YZC): China Loves Coal and So Should You

Page 1 of 2

“China consumes nearly as much coal as the rest of the world combined,” explains the U.S. Energy Information Administration. That makes Chinese demand a big issue for coal companies like Peabody Energy Corporation (NYSE:BTU), Alpha Natural Resources, Inc. (NYSE:ANR), and Yanzhou Coal Mining Co Ltd (ADR) (NYSE:YZC).

Peabody Energy Corporation (NYSE:BTU)

Chinese Growth

Between 2000 and 2011, coal consumption throughout the world minus China increased from 3.8 billion tonnes to 4.3 billion. Chinese demand, meanwhile, increased from 1.5 billion tonnes to 3.8 billion. According to the EIA, “a more than 200% increase in Chinese electric generation since 2000” is the main reason.

That said, China’s construction boom has also been a huge driver of metallurgical coal demand. So-called met coal is used in the steel making process.

Rough Market

Low natural gas prices in the United States, however, resulted in declining demand for coal as U.S. electric utilities switched to the cheaper fuel alternative. And, China’s economy cooling off led to declining demand for met coal. Increasing production levels in Asia have also hurt pricing. That has resulted in a buyer’s market for coal around the globe and a sell-off in coal stocks.

Now for the Good News

That said, China isn’t done building coal fired electric plants and India is starting to get in on the act, too. For example, Peabody Energy Corporation (NYSE:BTU) expects China to increase its coal imports by 200 to 250 billion tonnes between 2011 and 2016. India, meanwhile, is projected to increase imports by 100 to 150 billion tonnes. Those two countries account for nearly three-quarters of the growth Peabody is forecasting.

Much of that coal is going to feed new and existing power plants. However, both nations need so much power because of rapidly emerging middle classes. That will lead to infrastructure spending, which means increased demand for met coal, too.

Diversification

Peabody Energy Corporation (NYSE:BTU) is the most diversified coal option. The company has large coal operations in the US and in Australia. Its U.S. operations have been a focus as coal competes with low-priced natural gas. However, the jewel in the rough is Australia. This operation positions the company to easily export coal to Asia.

In fact, the country was the second largest coal exporting country behind Indonesia in 2011. So, as China and India increase consumption, Peabody will be right there to go along for the ride. That said, revenues have been lower on a year-over-year basis in each of the last four quarters. Earnings were weak, as well. One-time charges to adjust production were the big factor in the fourth quarter’s notable red ink.

Despite current weakness, investors looking for a turnaround play should strongly consider this coal miner because of its direct exposure to Asia.

Steel

Alpha Natural Resources, Inc. (NYSE:ANR)’s mines are all located in the U.S. It has operations in both thermal and met coal. It is, however, the number three met coal producer in the world based on volume. One of the primary markets for U.S. met coal is Asia.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!