Even with more efficient LED bulbs, the demand for electricity inevitably shoots up during holiday season, which is not so bad for “dirty coal.” To meet the surge in domestic demand, utility operators have to fall back on this much-maligned fossil fuel to light up the sky.
Per a forecast from the U.S. Energy Information Administration (“EIA”), coal production in Dec 2015 and Jan 2016 is expected to reach 73.27 million short tons and 73.84 million short tons, respectively. This indicates a production bump of 3.6% and 4.4% in Dec 2015 and Jan 2016, respectively, from Nov 2015 levels.
The U.S. electric power sector is expected to consume nearly 92% of the coal produced in the country for electricity generation. As consumers pay little heed to their electric bills during Christmastide, coal production gets a much needed shove.
The higher production due to the surge in electricity demand during Christmas festivities is a stark contrast to the difficult situation the coal miners are currently placed in. Coal has had to weather blows from many quarters, not least from the consistently declining natural gas prices. Add to that, the growing consensus about the use of renewables in the power sector to reduce the carbon footprint.
So, the festive season seems to be the right time to add some coal stocks to your portfolio and boost the beleaguered industry going into the New Year. Below we have highlighted a handful of coal stocks. Don’t forget that they’re instrumental in lighting up your Christmas.
Coal Stocks Fueling the Sparkle
Cloud Peak Energy Inc. CLD currently has a Zacks Rank #2 (Buy). Last quarter, the company pulled off a positive earnings surprise of 284.6%. Cloud Peak Energy’s mines supply nearly 4% of the total coal used in the nation’s power generation. This pure play Powder River Basin coal operator is quite safely poised to benefit from any surge in domestic demand.
CNX Coal Resources LP CNXC currently has a Zacks Rank #3 (Hold). It came out with a positive earnings surprise of 14.8% in the last quarter. This master limited partnership has 20% undivided ownership interest in the Pennsylvania Mining Complex. Thanks to current commitments, CNX Coal has increased its sold position to nearly 93%, 61% and 49% for 2016, 2017 and 2018, respectively, assuming the midpoint of its 2016 sales guidance range of 5.0–5.4 million tons.
Natural Resource Partners LP NRP currently has a Zacks Rank #3 (Hold). It too posted a positive earnings surprise of 76.9% last quarter. The partnership owned more than 2.3 billion tons of coal reserves as of Dec 31, 2014. Its revenue stream comprises royalties, overriding royalties, wheelage fees, and coal-related processing and transportation fees. Nearly 75% of its coal reserves are of the thermal variety and its reserves are spread across different coal rich basins of the U.S.
Another Zacks Rank #3 stock, Peabody Energy Corporation BTU recorded a positive earnings surprise of 0.85% last quarter. Peabody, along with its subsidiaries, has majority interests in 26 coal operations located throughout the major U.S. coal-producing regions and even in Australia. Nearly 10% of the electricity produced in the U.S. was powered by coal from Peabody’s mines.
Though the miner has not been immune to the ongoing softness in demand and prices of coal, it is strong enough to withstand the challenges and benefit from any turnaround.
Ground Realities
A sudden surge in demand for coal this season does not mean that all is well for the coal industry. The finalized version of the Clean Power Plan announced in Aug 2015 by the U.S. Environmental Protection Agency will ensure a steady drop in coal demand. The recent Paris climate deal has set a target of limiting global warming to “well below” 2.0 degrees Celsius (3.6 Fahrenheit). If the pledges are sincerely adhered to, it will seal the fate of any coal rebound.
Having said that, we still believe that coal can make a comeback as a fuel source, provided the utilities are willing to put in some extra investment in their coal-fired units to meet carbon emission standards. Lest we forget, coal is still the cheapest and most widely available fossil fuel that can provide a solution to new-age energy problems, provided we are willing to harness the energy without letting carbon emission spoil our joy of living.
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