Massey's ( MEE ) revenues from each ton of coal sold to utility customers has increased consistently over the past few years, from $37 in 2005 to $54 in 2009, due to rising global demand for coal resulting in increasing coal prices. We expect this positive trend to continue as demand for coal continues to expand globally alongside higher prices for coal futures. Massey competes with Peabody Energy ( BTU ) and CONSOL Energy ( CNX ) in the coal industry.
While we expect Massey's revenue per ton from utility coal to continue rising to $83 by the end of our forecast period, Trefis community members predict the revenue per ton will approach $100, implying an upside of 11% to our $55.08 price estimate for Massey's stock. Our price estimate is in line with market price.
Coal Demand to Increase at a Faster Rate
The demand for coal is driven by the demand for steel (which uses metallurgical coal) and the demand for electricity (which uses thermal coal). As steel and electricity form the basis for growth in developing countries, the demand for coal is expected to increase at a faster rate than its production.
Over the past few years, developing countries have been consuming a majority of the world's coal supplies to fuel their growth. In fact, China produced almost half the world's coal in 2009, but was still the second largest importer of coal in the world. The Chinese government's decision to set a limit on the quantity of coal produced in the country is expected to further strain the coal demand supply scenario in the years to come.
Higher Price of Coal Futures Expected
Coal futures contracts are traded on the NYMEX in the U.S. Futures contracts that expire at monthly intervals currently exist through December 2014, and are priced based on each year's expected price of coal. For 2015 and 2016, the annual growth in coal prices is assumed to be 4% over its value in the previous year, in line with its value in 2014.
Trefis Community Forecast
Trefis community members predict that Massey's revenue per ton from utility coal will increase from $57 in 2010 to $99 by the end of our forecast period, compared to the baseline Trefis estimate of an increase to $83 during the same period. The member estimates imply an upside of 11% to the $55.08 Trefis price estimate for Massey's stock.