Coal shares tumble as investors see no sign of turnaround

Fri Jun 28, 2013 4:22pm EDT
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By David Randall and Allison Martell

June 28 (Reuters) - Dave Steinberg often feels like one of the last remaining bulls in the tumbling U.S. coal market, and even he struggles to put a happy face on the industry.

Coal stocks "have been terrible," said Steinberg, a managing partner at Chicago-based DLS Capital Management, which oversees $350 million in assets and owns positions in coal producers such as Peabody Energy Corp, Arch Coal Inc and Alpha Natural Resources.

Each stock had fallen more than 40 percent for the year at Thursday's close, and was down at least 24 percent this month, to levels Steinberg calls "absurd." All told, Steinberg has lost "more than I would like to admit," he said.

"I've been in the business for 30 years and I don't think I've ever seen worse sentiment," he said, adding that he thinks each company is worth "at least double" its current trading price. He sees rising consumption and falling inventories stabilizing prices over the next year - a view that not many other investors share.

Despite their relative optimism, Steinberg and other coal bulls have a tough road ahead, with few believing they've seen the bottom for coal stocks even as some hit 10-year lows.

Most U.S. coal miners sell a mixture of thermal coal, used to generate electricity, and higher-margin metallurgical coal, used to make steel. Right now, both markets are under pressure.

With the shale gas revolution cutting the price of natural gas, U.S. power plants have been burning less coal. And the threat of regulation that could discourage coal generation - like the carbon rules promised by President Barack Obama on Tuesday - has cast a shadow over the U.S. thermal industry.

Nomura analyst Curt Woodworth believes the most recent slump in coal stocks has been largely driven by a slide in the global coking coal market, as steel production slows and the Australian coal supply recovers from some operational problems.   Continued...