Teck Resources Ltd (USA) (TCK), BHP Billiton Limited (ADR) (BHP): China Burns Half of World’s Coal – Good or Bad for U.S. Producers?

In order for PRB coal pricing to improve meaningfully in the coming years, new west coast and Gulf of Mexico ports need to be opened. The industry needs an extra 50-100 million tons of capacity, AND demand for those exports! That’s a lot compared to the EIA’s export forecast of 112 million tons in 2013.


Yet opposition to new ports is strong and timelines are long–and getting longer. In May, a prospective port from
Kinder Morgan Energy Partners LP (NYSE:KMP) was scrapped. Last year there were six planned port projects in the Oregon & Washington State region. Now there are three. Arch Coal Inc (NYSE:ACI) and Cloud Peak Energy Inc. (NYSE:CLD) have resorted to shipping coal through the west coast of Canada, hardly a long-term solution.

Speaking of Canada, Teck Resources Ltd (USA) (NYSE:TCK), the second largest coking coal exporter in the world behind BHP Billiton Limited (ADR) (NYSE:BHP), has a long-standing relationship with Asian customers. Teck Resources Ltd (USA) (NYSE:TCK) has dual rail lines and two primary west coast Canadian port facilities locked up for many years to come. As such, Teck Resources Ltd (USA) (NYSE:TCK) is a well-entrenched player that is very hard for U.S. producers to compete with.

Combined with its long-term Japanese JV partner Mitsubishi UFJ Financial Group Inc (ADR) (NYSE:MTU), BHP Billiton Limited (ADR) (NYSE:BHP) is by far the largest premium hard low-vol coking coal exporter in the world. BHP Billiton Limited (ADR) (NYSE:BHP) ships almost all of its coking coal from the Bowen Basin, in Queensland, Australia. Needless to say, the east coast of Australia is a lot closer than either coast of the U.S.

Conclusion

China’s dominance in coal consumption, not necessarily worthy of bragging about given the associated environmental concerns, is not likely to change anytime soon. This is not good for U.S. coal producers who suffer from a transportation disadvantage into Asia. In good times, everyone wins, but the coal market is not experiencing good times. It’s difficult to name any good reasons to own coal stocks at this time.

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

The article China Burns Half of World’s Coal – Good or Bad for U.S. Producers? originally appeared on Fool.com is written by Peter Epstein.

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