Coal stocks are suffering savage losses a day after President
Obama handily won a second term, easily defeating Republican
rival Mitt Romney. Shares of Peabody Energy (NYSE:
), the largest U.S. coal producer, are down 8.5 percent on volume
that is nearly 50 percent above the daily average in midday
Coal equities had been dealing with a tough 2012 due to
slumping natural gas prices and slowing emerging markets demand.
Low natural gas prices and record production in the U.S. prompted
many electric utilities to move away from coal to cheaper,
cleaner gas with some analysts speculating some of those power
producers may never return to coal.
With the economies slowing in major emerging markets such as
China and India, U.S. coal producers with exposure to
metallurgical coal, such as Alpha Natural Resources (NYSE:
) and Peabody, were hammered. Metallurgical is the grade of coal
that is essential in steel production.
Even with those headwinds, the coal sector found a bottom in
September and started to climb higher as the race for the White
House tightened. Coal equities were seen as prime near-term
beneficiary of a Romney win because the Republican championed
domestic energy production during his campaign. Conversely, some
traders viewed the President as a coal adversary because
alternative energy, such as solar and wind, have been
cornerstones of his energy agenda since he took office in
In the month leading up to the election, the Market Vectors
Coal ETF (NYSE:
) gained almost nine percent, but that ETF is off more than five
percent today on volume that is nearly quadruple the daily
four of the top five coal-producing states
, but lost Pennsylvania and its 20 electoral votes. That was not
a surprise given that Pennsylvania has not been carried by a
Republican presidential candidate since 1988. However, the loss
of Ohio and its 18 electoral votes doomed Romney and coal
Ohio does have some coal exposure and the state was viewed as
essential to Romney's hopes of winning. Traders apparently
thought the former Massachusetts governor would carry the Buckeye
State as they bid up
coal equities in the month leading up to the
Even when accounting for today's 10.3 percent slide, Alpha
Natural is up almost 31 percent in the past month. Peabody is up
19.2 percent over the same time and that includes today's 8.4
percent tumble. Arch Coal (NYSE:
), Joy Global (NYSE:
) and Walter Energy (NYSE:
), all of which are deep in the red today, are still sitting on
Significant risks to coal equities remain. Natural gas is still
abundant, clean and cheap. The market now knows it must contend
with a second term of a president that is not a major coal fan.
Combine those factors and it is easy to see coal's fundamental
thesis is severely damaged.
Looking at the charts, Peabody's slide today has taken it
below its 200-day moving average, a bearish sign. Alpha Natural,
Arch and Walter have not been above their 200-day lines for
multiple months, implying those names have shaken out of their
bear markets. That could make that trio vulnerable to further
selling pressure as traders adjust to the reality of another four
years of President Obama.
Consol Energy (NYSE:
), the coal stock that looks good by comparison against the rest
of the group today, could prove the name that is the sturdiest
going forward. Despite its coal exposure, Consol also has proved
natural gas reserves of 3.5 trillion cubic feet, giving the
company some leverage to the ditch-coal-embrace-gas trade so many
electric utilities have committed to.
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