Peabody Energy Corporation
) entered into an agreement with China's Shenhua Group to create
Sino-Pacific Coal Trading Corporation Pte. Ltd. The primary
objective of this Singapore based corporation will be to meet
Shenhua's coal demand from Peabody's global coal production
platform. The tie-up with Shenhua Group, which is one of the
largest global coal importers, is going to boost Peabody's sales.
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Peabody has been increasing its footprint in Asia in response to
the rising demand for coal in most emerging Asian countries. The
global demand for coal is expected to increase by 1.2 billion
tonnes in the next five years, with more than 80% of projected
increase to come from China and India. Japan, in the wake
of its nuclear disaster and subsequent deactivation of the
reactors, could further spur coal demand.
All the large U.S. coal operators are looking to tap export
opportunities to make up for sluggish domestic demand. The
climate plan of President Obama, stringent regulation and
compulsion to generate power from alternate sources are lowering
U.S. demand for coal from the utility sector.
We believe Peabody's operations in Australia and more recently in
Mongolia and Indonesia will feed Shenhua's demand for coal.
This 50/50 partnership with the world's largest distributor of
coal will solidify Peabody's position in China. Shenhua Group
controlled more than 65 million kilowatts of installed power
generation capacity at the end of Nov 2013. The partnership is
thus a strategic fit for this U.S. coal producer.
As per a U.S. Energy Information Administration (EIA) report,
Asia's share of total U.S. coal exports increased from 2% in 2007
to 25% in 2012. However, it accounted for less than 4% of Asia's
total coal imports in 2012, and less than 1% of total coal
consumed by the four large Asian importers.
This only goes to prove that there is ample room for growth for
U.S. coal producers. We expect many such large deals to follow
from producers like
Arch Coal Inc.
) and the like.
Peabody Energy has a Zacks Rank #3 (Hold). Some better-ranked
coal stocks include
Alpha Natural Resources, Inc.
Suncoke Energy Partners, L.P.
). Both the stocks carry a Zacks Rank #2 (Buy).