A synopsis of today’s Analyst Interview is presented below. The full article can be read at http://at.zacks.com/?id=2678.
Do you see coal prices increasing to previous highs anytime soon?
Current indicators are neutral. As one of my miners mentioned in its recent earnings call, coal demand is up slightly year-to-date while supply is down. This is obviously bullish. However, there is clearly excess capacity out there that could push additional supply on the market if prices continue to climb. Several miners had previously delayed projects or taken capacity offline due to lower prices earlier this year.
For example, Arch Coal (NYSE: ACI) previously dropped its 2007 production guidance from 140 million tons to just over 130 million. Consol (NYSE: CNX) refused to increase production unless the market clearly demanded it. Peabody Energy (NYSE: BTU) the world’s largest coal miner, decided to delay its massive “School Creek” mine project. Earlier this year it announced that it would now put it off until at least 2009. So miners out there have additional supply sources that can be brought online. This additional supply will curb the impact that any marginal near-term demand might have on pricing. Another worry in the near-term, as mentioned above, is potential carbon-cap legislation. Looking ahead, we are neutral on coal pricing through the first half of 2008.
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