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Reading Summary: King Coals Throne Under Threat.docx

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Geography 3422A/B
Milford Green

After a decade of wrangling, new clean-air rules are slated to come into effect in the new year, upending the coal market. U.S. environmental regulations will force power plants to reduce pollution as of Jan. 1. Although the industry is waging an effort to stop the rule's implementation across 27 states, power plants already are ratcheting back purchases of thermal coal, which produces smog and soot-causing emissions as it is burned to produce electricity, in favor of cleaner fuels. That has sent prices of thermal coal plummeting 13% on the New York Mercantile Exchange between the day the rule was announced on July 7 and last week's one-year lows. While trading is relatively thin, it is used as a proxy for the billion-dollar cash market on the East Coast, where physical coal changes hands. On Friday, central Appalachian coal fell 18 cents, or 0.3%, to $69.07 a short ton. Investors who want exposure to coal prices typically invest in coal-miner stocks. Some market watchers have urged investors to shift toward the types of coal used in steelmaking, known as metallurgical coal, or "met," which trade at a higher price and has more exposure to China's steel sector, an expanding market. "We came out with a preference for met; the basic reason in our view is that prices are more likely to rebound than thermal," said David Gagliano, an analyst with Barclays Capital. But investors, he said, still are banking on a rebound in thermal coal, and consequently some coal producers. Although U.S. policy makers are turning away from thermal coal, which is mined in places like West Virginia and Wyoming, coal continues to hold significant sway in U.S. and global energy markets. The U.S. is home to the world's largest reserves of the fuel, and $33 billion of thermal coal is expected to be produced this year based on current market prices, according to Brean Murray, Carret & Co., an investment bank. The gradual shift toward cleaner power, and falling coal prices, is forcing coal producers to seek markets elsewhere. That is likely to push investors toward coal companies that have access to export capacity. Analysts and brokers see reasons for steady or higher coal prices in the form of demand
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