Arch Coal (NYSE:ACI) posted third quarter 2012 earnings of $0.20 per share, beating estimates by $0.36 and pretty much blowing everyone’s mind. Revenue declined 9.2 percent year over year to $1.09 billion, but grew 19 percent quarter over quarter. Shares jumped over 10 percent in early afternoon trading on the news.
Shares of Arch Coal have risen over 25 percent in the past month ending October 26, and are currently trading close to $8. This is obviously a far cry from a peak above $70 per share in mid 2008, and Friday’s post-earnings gains only somewhat undo losses accumulated over the last week, but the recent up-down turbulence in the coal market suggests there may be life in the market yet.
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Industry partner James River Coal Company (NASDAQ:JRCC), which will release its third quarter 2012 results on November 7, has seen explosive growth over the last three months. The stock price is up over 73 percent over the past month ending October 26. Alpha Natural Resources (NYSE:ANR) climbed 29 percent over the same period.
Post-crisis, coal stocks entered a free fall as demand dried and supply increased. Companies were forced to suspend production and effectively sit on their hands while natural gas prices crashed, adding to industry woes. Cheaper and cleaner, natural gas soldiered through ongoing concerns over the environment impact of hydraulic fracturing. Demand for the fuel increased, and thermal coal demand suffered.
However, gas prices are starting to recover, pushing into and past the $3.50/mmbtu range. A recovery in natural gas prices points in a bullish direction for coal, but keep in mind that oil and gas giants like Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are making aggressive natural gas plays. With billions in projects pending, its entirely possible that a glut of supply could drive prices down again, dragging thermal coal with it.
That being said, in 2011 coal still accounted for 42 percent of the electricity generated in the United States, compared to 25 percent for natural gas. As has been pointed out time and time again — although apparently ignored in stock price collapses — coal is not going away quickly. If anything, it will be phased out. Natural gas does provide a tangible threat, but infrastructure doesn’t convert overnight.
With the presidential election still a toss up, the potential for a Mitt Romney presidency has ignited speculation and pumped energy into the market. Tight regulations could be replaced with subsidies if a Republican takes the White House, and coal companies could feel some of the billions in love that President Barack Obama has shown alternative energy.
“Looking ahead, we believe global coal markets are in the process of correcting with the domestic thermal market building some momentum while metallurgical markets are bottoming out,” said Arch Coal president and CEO John Eaves in the earnings release. He added, “We anticipate that 2013 will be a difficult year for the coal industry, but we believe our ongoing efforts will allow Arch to emerge from this cyclical downturn as an even stronger company.”
Rival CONSOL Energy (NYSE:CNX), with a foot in both energy buckets, released third quarter 2012 earnings that came in at -$0.05 per share, missing estimates by $0.06. Revenue was down 23.7 percent year over year at $1.16 billion.
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