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
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
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