The shares of coal firms continued to trade higher in Thursday’s session and are the top sector performer. Investors see a potential for miners to capitalize on cooler temperatures and higher natural gas costs.
Prices for natural gas on the future markets have increased about 80% ever since it hit a 10 year low of $1.91 per 1,000 cubic feet on 19th of April.
Natural gas costs that range from $3 to $4 or over 1,000 cubic feet would make coal more competitive as a fuel for utilities to use in generating electricity, as per Michael S Judas, an analyst at Sterne, Agee & Leach.
Additionally, coal firms have cut down in production that are aiding in shrink inventory levels that could be of some advantage.
The coal market has been battered this year by weak demand for thermal coal that is used to make electricity and for metallurgic coal that is used in manufacturing steel.
A mild winter cut demand from utilities for coal to control generators. Many have switched to natural gas that was cheaper as energy. Record summer heat lowered some of the inventory as utilities burnt more gas than expected to meet stipulate for electricity to control air conditioning.
The slower global economy has resulted in less demand for steel. Global inventories are abundant which indicates steel manufacturers require less coal for production.
Mining firms probably will have to make extra cuts in production of coal, as per Dudas. He believes that most of the cuts have been performed for thermal coal but the metallurgical coal industry is still under a lot of pressure by abundant supplies.
As of afternoon trading, stocks of Peabody Energy Corporation(NYSE:BTU) increased $2.12 cents to $26.15. Stocks of Arch Coal Inc(NYSE:ACI) rose $1.12 or 16.50%. Shares of Alpha Natural Resources, Inc.(NYSE:ANR) popped up 16.62% to $8.52. CONSOL Energy Inc.(NYSE:CNX) added 8% to $35.49, Walter Energy, Inc.(NYSE:WLT) rose 7.37% and Cloud Peak Energy Inc.(NYSE:CLD) added 6%.