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NEW YORK (AP) – Concerns about China taking measures to slow down its economy and a broader market slide sent shares of coal stocks tumbling Thursday. An analyst also downgraded many big names in the industry, warning that the sector is increasingly being threatened by the growing popularity of rival energy sources like inexpensive natural gas.
China on Thursday reported 10.7 percent economic expansion in the fourth quarter and 8.7 percent for all of last year. The supercharged numbers reinforced concerns that China will take more steps to tighten monetary policy and rein in its economy – potentially hampering a global economic rebound. Coal currently provides two-thirds of China’s power but if the nation tamps down expansion, coal demand would suffer.
Citi Investment Research analyst Brian Yu also warns that U.S. coal markets face stiffening competition from other energy sources, namely inexpensive natural gas and wind energy, which is slowly edging its way into the market.
The popularity of natural gas has grown, given its cheap price, brimming domestic supplies and smaller carbon footprint. Yu said the resource – which competes with coal to supply heat and electricity to the nation’s homes – will likely depress coal prices in the coming years.
Natural gas is used to heat half the homes in the U.S. and generates 20 percent of the nation’s electricity. Coal currently generates close to half of the country’s electricity, according to the U.S. Energy Information administration.
Yu also predicted that “stealthy wind” shares will gain as the renewable energy source grabs chunks of the energy market from coal. He noted that 80 percent of incremental wind capacity is in coal intensive regions.
Yu downgraded Arch Coal Inc., Massey Energy Co. and Patriot Coal Corp. to “Sell,” citing significant recent appreciation in their share prices.
Shares of Arch Coal fell $1.59, or 5.9 percent, to close at $25.31. Massey shares declined $4.21, or 8.8 percent, to finish at $43.75. Patriot Coal shares sank $2.66, or 13.2 percent, to $17.57.
He cut his rating for Consol Energy Inc. to “Hold” from “Buy.” Shares of the company tumbled $3.06, or 5.8 percent, to $49.75.
Across the broader market a drop in financial shares pounded stocks after President Barack Obama proposed greater restrictions on big banks. The Dow fell 213.27, or 2 percent, to close at 10,389.88, its biggest drop since Oct. 30. The index hasn’t closed with triple digit moves in four straight trading days since May 6-11.
The broader Standard & Poor’s 500 index fell 21.56, or 1.9 percent, to finish at 1,116.48.