4 Stocks to Keep a Close Watch From the Coal Industry

Jewel Saha
8 min read

In This Article:

The Zacks Coal industry stocks are suffering due to a decline in the use of coal in thermal power plants in the United States. In 2024, the demand for coal will be adversely impacted by the planned retirement of coal units and the utilization of more renewable sources for electricity generation. The ongoing energy transition, with utility operators steadily phasing out coal units, may hit the coal industry. Then again, the continuing conflict between Russia and Ukraine is creating fresh demand from European coal-importing countries. Despite a drop in coal production, export volumes are likely to boost the prospects of coal stocks like Peabody Energy BTU. Other coal stocks like Arch Resources ARCH, SunCoke Energy Inc. SXC and Ramaco Resources, Inc. METC, with high-quality met production volumes, are expected to gain during this difficult phase.

About the Industry

The Zacks Coal industry comprises companies involved in the discovery and mining of coal. Coal is mined through the opencast or the underground method. The commodity is valued for its energy content and used worldwide to generate electricity and manufacture steel and cement. Per the U.S. Energy Information Administration (“EIA”) report, the current U.S. estimated recoverable coal reserves are about 252 billion short tons, of which about 58% is underground mineable coal. Given the current production rates, coal resources are likely to last many years. Five states in the United States contribute 70% of the yearly production of coal and 60% of the coal production from surface mining. Per EIA, the demand for coal will decline due to the usage of more renewable assets and a gradual shutdown of coal-powered generation units, hurting the prospects of the coal industry.

3 Trends Likely to Impact the Coal Industry

U.S. Coal Production and Price Rises: Per EIA’s projection, coal production in the United States is expected to drop in 2024 and 2025. EIA projects U.S. coal production to decline 14% from 2023 levels to about 500 million short tons (MMst) in 2024 and register a decline of nearly 5% to 475 MMst in 2025 due to the expected reduction in coal usage in electricity production. EIA projects 2024 coal price to increase by a cent from the 2023 level to $2.53 per million British thermal unit (Btu). This would encourage coal operators as they fight a tough battle against other cleaner sources of energy.

Despite Reliability, Emission Policy to Hurt Coal Industry: Coal is still a reliable source of energy and ensures 24x7 electricity production from the generation units. However, increasing emission concerns are resulting in reduced usage of coal in electricity generation. The United States’ Sustainability Plan includes an aim toward transitioning to 100% carbon pollution-free electricity by 2030 and achieving net-zero emissions by 2050. Utility operators are now focused on generating more electricity from clean energy sources, lowering coal usage and gradually shutting down the existing coal-based electricity generation units. Per EIA, the share of coal in U.S. electricity generation would drop from 17% in 2023 to 16% in 2024.Unless utility operators invest heavily in pollution-control measures to reduce emissions from power plants, domestic coal usage will continue to drop. Coal industry operators should brace themselves for challenges as several electric utilities have decided to become carbon neutral and are aggressively cutting down on coal usage. Coal-fired units are gradually becoming backup units for utility operators in case of emergency power requirements, and 12 GW of coal-fired electricity generating capacity are going into retirement.

Recommended Stories