By Jewel Saha

June 19, 2021 - The Zacks Coal industry stocks have been under tremendous stress due to concerns about the impact of rising emissions. Coal is gradually losing ground to natural gas and clean alternate sources of energy. The decline in prices and demand has been hurting the profit levels of coal operators over the past few years. However, with the gradual rollout of vaccines and improving global economic activity, electricity demand is increasing and utility operators are buying more coal to step up production. Stocks like Peabody Energy Corporation, which have exposure in thermal coal and metallurgical (met) coal, are well poised to benefit from the revival in the domestic and international coal markets. Other coal stocks that are poised to benefit from an expected increase in U.S. met coal export in 2021 are CONSOL Energy Inc., SunCoke Energy Inc. and Ramaco Resources as steel production is expected to increase during the 2021-2022 time period in the European and Asian countries.

3 Trends Likely to Impact the Coal Industry

Losing Ground to Clean Energy Sources: The U.S.-based coal companies are presently fighting a lost cause. Clean energy sources like natural gas and renewable energy are now preferred to coal for their energy needs. The availability of cheap shale gas in the United States, technological advancement and incentives on the usage of renewable energy continue to cut down the popularity of coal as a source of energy. The outbreak of the novel coronavirus also adversely impacted demand for coal globally.  A transition is quite evident with utilities currently favoring clean energy sources. Utilities are targeting net-zero emission, shutting down coal-fired plants and replacing electricity generation with clean sources. The domestic consumption of coal will drop further over the long term as quite a few coal-fired plants are scheduled to be shut down by 2030. Per a report of environmental group Sierra Club, since 2010, 63% of U.S. coal-fired plants have been retired or committed to retiring by 2030. However, the EIA sees a temporary respite for coal as a rise in natural gas prices in the United States is expected to create demand for coal in the domestic markets. Electric power generators are switching to coal from natural gas. Per EIA, coal consumption in the U.S. Electric Power sector is likely to increase 16.4% year over year to 508.2 million short tons (“MMst”) in 2021.

Coal Exports Likely to Rise: Coal exports have been aiding U.S. miners to regain some lost ground. After the lockdown-induced adverse effects on industrial and commercial activities across the globe in 2020, the EIA has noted a revival post pandemic. This has, for instance, led to improving steel production in the European and Asian countries. Consequently, power demand on a global scale, and metallurgical and thermal coal export volumes are likely to increase in 2021. Per EIA, coal exports will total 80.6 MMst in 2021, up 16.7% from 2020 and rise further by 14.3% year over year to 92.2 MMst in 2022.

New Emission Policy Will Hurt Coal Industry: The improvement in demand for coal is expected to be short-lived as the new environmental policy will target 100% carbon pollution-free electricity by 2035, which will significantly lower the demand for coal from the U.S. electricity space. Unless utility operators invest heavily in pollution-control measures to reduce emissions from power plants, domestic usage of coal will drop significantly. The new policy will also aim at lowering greenhouse emissions by 50-52% by 2030 from the 2005 levels.  Going forward, coal industry operators are likely to face many difficulty as a number of electricity generators have decided to become carbon neutral by 2050 and completely cut down coal usage.