| NEW YORK
NEW YORK Aug 29 Beaten-down U.S. coal company
stocks may receive a lift in coming weeks if deteriorating
relations between Russia and the West push President Vladimir
Putin to shut off Europe's natural gas supply.
The crisis in eastern Ukraine has emboldened Europe and the
United States to impose broad sanctions on Russia. But Europe
finds itself in a precarious position, with almost a third of
the natural gas the continent consumed in 2013 flowing from
Russia, according to the U.S. Energy Information Administration.
Europe's heightened concerns about energy security could
provide an opportunity for U.S. coal companies, which have been
hurt by declining domestic consumption, to step in and fill the
gap as winter approaches. More than half of U.S. coal exports
already reach Europe.
"Export demand will certainly increase, with the situation
in Russia and Ukraine having a big impact on Europe with respect
to natural gas," said Ernie Cecilia, chief investment officer at
Bryn Mawr Trust in Bryn Mawr, Pennsylvania.
"In the short term, there's no question that a rise in
export demand will be helpful to coal stocks."
Yet significant headwinds at home would likely make any
comeback in coal companies' stocks short-lived and hard-fought.
Even as the broader stock market has rebounded from the lows
seen during the financial crisis, coal stocks have languished.
Shares of Peabody Energy Corp, the biggest U.S.
producer of coal, have declined more than 27 percent since March
9, 2009, when the S&P 500 hit its financial crisis nadir,
closing at 676.53 points.
While the S&P has nearly tripled from that day, the Dow
Jones U.S. Coal Index has lost 7.7 percent in that
time. The last three-plus years have been particularly bad for
the coal index, which has lost nearly three-quarters of its
value since April 2011.
The index includes just three stocks - Peabody, CONSOL
Energy and Alpha Natural Resources. CONSOL,
which is more diversified and derives around a third of its
revenue from natural gas, is the only one up on the year so far.
It has gained 5.3 percent, but still lags the wider S&P 500
, which is up more than 8 percent.
Peabody is down around 20 percent this year, and Alpha
Natural has swooned 45 percent.
CONSOL is the only one of the three expected to show a
profit in the next two years, according to Thomson Reuters
StarMine, which tracks corporate profit estimates.
Competition with natural gas, the emergence of renewable
energy technologies and new environmental regulations
contributed to a fall in U.S. coal production in 2013 to the
lowest levels since 1993, according to the Energy Information
Domestic coal consumption is slated to decline by 2.7
percent in 2015, as federal standards requiring power plants to
reduce air pollution expedites a shuttering of coal power
plants. U.S. coal consumption peaked in 2007 and has declined
nearly 37 percent since then, EIA data shows.
That may temper any gains in coal stocks, both in scale and
"I just don't know if any of this - the situation in Russia
and Ukraine - would be sufficient enough to overcome significant
pressure in the domestic market," Cecilia said.
Energy stocks have overall remained favorable for investors,
but not necessarily those with money in coal. The S&P 500 energy
sector is outperforming the wider index with a 9.3
percent gain so far in 2014.
"We look at the domestic energy landscape, and the abundant
supply of natural gas has impacted coal dramatically," said
Timothy Rooney, vice president of product management and
research for Nationwide Funds.
"Generally, energy in the U.S. is a good long term
investment, but that's really being driven by oil and natural
(Reporting by Akane Otani; Editing by Leslie Adler)