Shares of Coal Miners Cool After Midweek Rally on Hints of Stronger Demand

Shares of Coal Miners Cool After Midweek Rally on Hints of Stronger Demand

Saturday, August 19th 2006

Shares of coal mining companies cooled Friday after favorable economic data boosted investor confidence and hints of heightened demand this fall boosted the stocks in a midweek rally.

Shares of Peabody Energy Corp. gained $3.15, or 7.1 percent, to $47.83 between the closing bells and Tuesday and Wednesday. Shares of Arch Coal Inc. added $1.72, or 5 percent in the same period. Shares of Consol Energy Inc. jumped $1.63, or 5.7 percent, to $39.10 between Tuesday and Wednesday. All were lower by Friday’s session.

Two key pieces of July economic data raised stocks in nearly every sector. On Tuesday the Department of Labor’s producer price index had its best showing for core inflation in nine months. And on Wednesday, its core consumer price index rose less than economists expected.

The uptick in coal stocks came after weeks of pullback, which probably made valuations more attractive. Since their peak in May, analysts said, the stocks have lost nearly 40 percent, mostly on declining coal prices, higher inventories at utilities and a decrease in the price of natural gas to below $7 per 1,000 cubic feet.

But coal stocks also heated up on supply and demand news. The government’s Energy Information Administration said it expects supply and demand to grow and the imbalance between the two to tighten in 2007.

It also said the electric power sector’s coal consumption should grow by 2 percent over the next 16 months, mostly on higher natural gas and oil prices. The price of coal sold to the sector, which despite the intrusion of natural gas in recent years still relies almost entirely on coal for fuel, should grow by 8 percent over the same period.

Ronald J. Barone, an analyst at UBS Securities LLC, also tried this week to ease investor fears over utilities switching to natural gas from coal. Barone said natural gas must fall to $3.66 per thousand cubic feet (mcf), or about $3 less per mcf than it’s trading now, to reach parity with coal and then sustain that price for an extended period to warrant a switch.

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