Coal stocks have been among the markets worst performers over the last month.
Some of the notable coal stocks losing ground in the last month include:
- Cliffs Natural Resources (CLF), down 18%
- Peabody Energy (BTU), down 17%
- Arch Coal (ACI), down 31%
- Alpha Natural Resources (ANR), down 31%
- Walter Energy (WLT), down 40%
The coal industry, and the broader energy sector, is facing a number of external threats.
Earlier this week, the U.S. EPA proposed regulations that would for the first time cut carbon pollution from existing power plants. The proposal will cut carbon emissions from the power sector by 30% when compared to 2005 levels.
In a note to investors today, economists at Goldman Sachs said the firm’s equity analysts covering the utilities sector, “expect more than 20% of coal-fired generation capacity to be retired due to environmental rules.” Goldman notes that the EPA estimates 19% of coal generation capacity will be uneconomic under its proposal.
Over the last few years, coal stocks have moved almost in lockstep with the Chinese economy, which has slowed from annualized growth north of 11% in late 2010 to current levels of about 7.5%.
Barclays recently outlined a few steps that could shake up utility companies, focusing on the threat that solar energy poses to traditional utilities.
And in recent weeks, each of these companies has had cautious commentary on their level of capital expenditures, or essentially how much money they are investing into the business.
Cliffs Natural recently cut its 2014 capital spending expectations by 25%.
Peabody recently reported its lowest level of capital investments in 10 years.
Arch Coal “modestly reduced” its 2014 capital spending levels.
Alpha Natural cut its 2014 capital expenditures guidance to $US225 million to $US275 million from $US250 million to $US300 million.
Walter Energy said in its latest quarterly report that it expects 2014 capital expenses of $US130 million, adding that “continued lower capital spending reflects the Company’s focus on disciplined spending in light of ongoing weak market conditions.”
Following the EPA’s proposal, Walter Energy issued a statement, saying it does not believe the regulation will have “any material impact” on the company.
But it seems that whether its a slowing Chinese economy, new government regulation, or potential threats from new energy sources, the coal industry is in turmoil and investors are feeling the pain.