Arch Coal Inc (ACI), Peabody Energy Corporation (BTU), United States Steel Corporation (X): Halt! Consider This Before Investing in Coal Companies

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Another aftermath of a weak demand for coal

Coal is also a fuel utilized in the steel industry. Weak demands for coal signal weak demand for steel as well. United States Steel Corporation (NYSE:X) recently missed analysts’ estimates by posting a first quarter net loss of $73 million, narrower than the net loss of $219 million posted last year. The net loss was mainly due to a loss of $13 million from its steel sector, compared to a net profit of $183 million over the same period.

I believe that the demand for steel should decline, which will hurt United States Steel Corporation (NYSE:X)’s revenues. China’s urbanization, although it is still expected to continue, will develop at slower paces reducing United States Steel Corporation (NYSE:X)’s exportation potential. One positive aspect is that the company should see lower costs of operation due to low prices in coke, the coal-based fuel used for steel production. As the demand for coal remains weak due to global economic concerns, the price of coal should not increase significantly. As long as the demand for coal and steel remains low, United States Steel Corporation (NYSE:X) does not present an attractive investment prospectus, and thus investors should steer to other directions.

Don’t get fooled!

The demand for coal remains weak, and coal-based companies are not appealing to commit our money in the sector. Investors should look for improvements in the overall world economies, particularly in China as it is the main importer of coal, to consider investing in any of these companies. Further, investors should wait until the proposal to ban certain coal imports in China is resolved, as it may affect US companies substantially.

The article Halt! Consider This Before Investing in Coal Companies originally appeared on and is written by Robinson Roacho.

Robinson Roacho has a short position in X. The Motley Fool has no position in any of the stocks mentioned. Robinson is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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