Coal’s Uphill Battle

• Posted by Robert Sinn
• on July 10th, 2012

Patriot Coal ($PCX) filed for Chapter 11 bankruptcy protection yesterday afternoon, making PCX the first major US coal producer to file for bankruptcy this year. Coal’s electricity fuel market share fell from 45% a year ago to just 36% at the end of the first quarter of 2012 and the chart below clearly illustrates the major transition underway across the US:

 Click to enlarge

(h/t @Bourbon_Meyer)

The switch to natural gas is clearly afoot in a big way and small differences in the natural gas vs. coal price spread are unlikely to significantly alter the trajectory of this secular shift. I believe we are likely to see more coal bankruptcies over the coming months and only the strongest players will survive this hugely challenging period for the coal industry. It will also be interesting to see how the share prices of the largest players in the sector ($ACI $ANR $BTU $WLT etc.) trade over the coming days in the wake of the PCX bankruptcy which was well anticipated and arguably “priced in” to many of these beaten down stocks.

 

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