The number two US coal company, Arch, announced today it lost over $500 million last year. Arch recently suspended dividend payments to its investors. TheStreet Ratings team listed Arch as a sell, and gave it a rating score of "D," noting:
The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, weak operating cash flow, poor profit margins, generally disappointing historical performance in the stock itself and generally high debt management risk.
Last week, the nation's largest coal firm, Peabody Energy, announced it lost $787 million last year and cut its dividend 97% to 25 cents. Peabody's operating cash flows of $337million were smaller than its interest payments of $414 million. Greg Boyce resigned as CEO in late January around the time S&P downgraded its outlook for the firm to "negative."
Number three Alpha Natural Resources hit a 52 week low last week of $.88 a share. The company's stock is down 79 percent over the last year. On New Year's Eve, its President resigned. Alpha currently has a ratings score of "D-" and recommendation of "sell" from analysts.
In the past five years, shares in Peabody have lost 87 percent of their value, shares of Alpha have lost 98 percent of their value, and shares of Arch have lost 96 percent of their value.
To most folks, that looks like a trend. In fact, when you pair the trajectories of the S&P 500 and the top five coal stocks, it looks like a divining rod with the coal stocks headed towards sunk.
Curt Woodworth, an analyst at Nomura, told The Financial Times this week "I think you're going to see multiple bankruptcies in US coal over the next 12-18 months." "The outlook isn't good: the outlook is getting worse."
Natural gas prices have played a large role in this, as has the plummeting cost of oil. But markets have also stopped buying coal companies' rosy pictures of blossoming overseas markets, particularly in Asia.
My colleague Clark Williams-Derry at the Sightline Institute makes this crystal clear in his recent blog post, as have other analysts who see a grim picture for coal--both nationally and internationally--going forward.
According to The Financial Times, Matt Preston, an analyst at Wood Mackenzie, said that there was a "worldwide malaise" in coal demand. "China is the biggest single importer, so if China is declining the whole world is going to feel it," he said. "But all around the world, the industry is challenged."
Besides cheap natural gas and oil, and increased market penetration of renewables like wind, solar and energy efficiency, new health public health pollution limits have also factored into coal's shrinking market share. Measures by the Environmental Protection Agency to limit air toxics like mercury as well as carbon pollution and the pollutants that cause smog have played a role in cutting coal's market share.
(And we need those protections! The Obama Administration is putting in place a rational approach to climate change and public health, based on sound science and economics, as well as a moral obligation to our protect our children and their future. Let your voice be heard!)
Industry executives and their allies say the Obama Administration is waging a "war on coal" with these protections, and lay the blame for their woes at the White House door.
But that's politics, not economics. The news this week just shows us how market economics are pushing King Coal further and further down from his throne.