On Jun 6, we have issued an updated research report on
Arch Coal Inc.
). The coal operator stands to benefit from the improving thermal
coal market in the U.S. Just as
continue to rise, customers are likely to switch to coal leading to
a decline in coal stockpiles. As per the Energy Information
Administration, coal consumption is estimated to increase by 5% in
2014 backed by rising power demand in the U.S.
However, recent pro-environment proposals from the Obama
administration calls for a 30% cutback in carbon emissions by 2030
from coal-fired power plants from 2005 levels. If the latest
climate-change action plans are implemented without any downward
revision in emission slab, it will increase compliance costs for
the coal-fired plants. This might impact coal demand and prove
unfavorable for Arch Coal's future prospects.
Arch Coal, a Zacks Rank #3 (Hold) stock, reported a
wider-than-expected loss in the first quarter 2014, mainly due to
softness in the metallurgical (met) coal market and rail congestion
issues in the Powder River Basin.
Meanwhile, rising infrastructure investments in India and China as
well as a buoyant U.S. auto market will drive steel market
fundamentals. The World Steel Association estimates steel
production to rise by 3.1% in 2014. This will steadily increase
global met coal demand and present an encouraging opportunity for
coal export for Arch Coal.
Arch Coal's cost-containment efforts are also appreciable. The ramp
up in the longwall Leer Mine in Appalachia as well as progress in
the Mount Laurel mine will allow the company to enjoy higher
production at lower cost.
Nonetheless, stiff competition from prime-coal exporting countries
like Australia and Indonesia are potential headwinds.
Key Picks from the Sector
Other better-ranked coal players include Zacks Ranked #1 (Strong
Alliance Holdings GP, LP
Alliance Resource Partners LP
). Another coal stock that warrant a look is
CONSOL Energy Inc.
), which currently holds a Zacks Rank #2 (Buy).
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