Coal Industry Stock Outlook For June 2016

What is the first thought that crosses our minds when we think of coal? Do we only relate this fossil fuel with belching black smoke or look upon it as a cheap source of power generation?

We will always have mixed feelings with different groups advocating divergent views. Even with a declining share in the energy generation mix, the truth is coal still holds a prominent place and will do so for the next few decades.

Coal is currently mined in more than 50% of U.S. states. The top five coal-producing states – Wyoming (39% of the total), West Virginia (12%), Kentucky (8%), Illinois (5%) and Pennsylvania (5%) – contribute nearly 79% of the total coal production of the country, per reports from the U.S. Energy Information Administration (EIA).

Unfortunately, all coal producers have been affected by the drastic fall in demand and consequently its prices. Prices of major coal companies have taken a beating, so much so that reverse stock splits could not help Peabody Energy Corp. and Arch Coal from bankruptcy and delisting. But, coal still occupies an important position in the fuel mix for electricity generation and is expected to hold its place for the next few decades.

Coal remains a dominant source of power generation worldwide despite the increasing use of other sources. However, natural gas and renewables are eating away coal’s share at a rapid pace. The new Clean Power Plan, announced in Aug 2015 by the U.S. Environmental Protection Agency (EPA), calls for CO2 reduction of 28% by 2025 and 32% by 2030, from 2005 levels. This plan will certainly ensure the closure of more coal-based power units. They will either be idled or converted to natural gas based units, affecting the long-term prospect of coal stocks.

Coal and its various byproducts also find use in the industrial sector, underlying its manifold advantages. However, unchecked usage of this fossil fuel has raised concerns in all quarters. The primary cause of concern related to coal is global warming caused by the emission of greenhouse gases.

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