It’s typically held that the market will price in all current information. To avowed economists, this means markets can virtually predict the future. If you buy that logic, the market may be signaling something environmentally positive about coal and carbon legislation.
This from Greenwire ($ub. rqd):
Citing high input costs, weather and environmental concerns, the global bank Citigroup yesterday downgraded coal stocks across the board and shaved earnings estimates and targets for Peabody Energy (NYSE: BTU), Arch Coal Inc. (NYSE: ACI) and Foundation Coal Holdings Inc. (NYSE: FCL).
In a metals and mining report to investors, Citi analyst John Hill issued no “buys” for coal companies and recommended switching to steel, gold and other energy stocks.
After maintaining a bullish view of coal so far this year, Hill expressed concern that data points are failing to translate into utility stockpile drawdowns as natural gas becomes a bigger share of the power-generation feedstock.
“At the same time, prophesies of a new wave of coal-fired generation have vaporized, while clean-coal technologies, such as IGCC with carbon-capture and coal-to-liquids, remain a decade away or more,” Hill said.
He underscored that coal has missed a “critical” time window: If stockpiles remain elevated into autumn, they are likely to remain so, he explained, and perpetuate contract/pricing standoffs with utilities into 2008.
Election politics are likely to turn “more bestial” for coal next year, Hill added.
“Candidates are already stepping up to ‘ban coal,’ while company productivity/margins are likely to be structurally impaired by new regulatory mandates applied to a group perceived as landscape-disfiguring, global warming bad guys,” Hill explained.
The New York-based bank said it expects coal prices to rise but earnings to falter. Citi was expected to downgrade coal stocks in the late summer, but the bank advanced the timetable due to “likely grim” second-quarter earnings from companies within the sector.
Copyright E&E Publishing, LLC. Reprinted with permission.
This deserves a bit of explanation.
Conventional wisdom has it that all new generation is gas and therefore natural-gas price spikes have led to higher electric rates. This is only partially correct. Yes, most new generation additions over the last 15 years have been gas-fired, but most of the new generation has actually come from coal and nuclear plants that manage to run a bit harder.
The entire coal fleet had a 58 percent capacity factor in 1990, and a 75 percent capacity factor in 2003. Same installed base, but lots more coal combustion.
This trend cannot continue indefinitely, but it has served to substantially hedge away much of the price increase in natural gas, as we have effectively become more coal-intensive as a nation. (Gas-plant capacity factors fell precipitously during the same period.)
Ergo, continuing on this trend line is possible only if we build new coal plants … which requires getting more permits in place. Citibank seems to be think that this is unlikely. If they’re right, it may suggest a shift to a less carbon-intensive grid. Certainly not the end game, but it just might be the beginning.