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Cloud Peak (CLD) to Supply Coal to 2 Power Plants in Japan

Zacks Equity Research

Cloud Peak Energy CLD announced that it has entered into a long-term coal export sales agreement with JERA Trading Pte Ltd. for supplying coal to two power plants in Japan. Cloud Peak will supply the coal produced from its Spring Creek Mine to meet the export requirements.

The coal shipment is expected to begin at the end of 2019 and is likely to continue for a period of 30-40 months. The coal export volumes are expected to touch 1 million metric tonnes in the final year of contract.

Cloud Peak’s Coal Export Plans

Cloud Peak mines low sulfur coal from its three mines located in the Power River Basin and has exported 4.5 million tons through its Westshore Terminals in 2017. The company expects to increase exports volumes to 5.5 million tons in 2018.

The key drivers for coal demand is higher imports from China and South Korea as new coal fired units have come online. In addition, the two 540-megawatt Integrated Coal Gasification Combined Cycle coal-fired power plants in Fukushima, Japan will also boost demand for coal.

Since, coal demand in power generation is expected to reduce in the United States, new export opportunities will help the coal miner to survive in the decreasing domestic demand scenario.  

Coal’s Future in the United States

Despite the Trump administration’s new policies, coal is gradually losing importance among the utility operators. The primary reason for this is the focus of the utilities to lower emission and produce more electricity from natural gas and alternate source of power.

The recent release by the U.S. Information Administration (“EIA”) also echoes the same sentiment. Per the EIA report, coal’s share in electricity generation is likely to fall from 30% in 2017 to slightly lower than 30% in 2018 to 28% in 2019.

The EIA report indicates that the U.S. coal production will drop 1.8% in 2018 to 758.7 million short tons and further reduce by 2.3% to 741.2 million short tons in 2019. Coal export is expected to drop to 80.17 million and 74.7 million short tons in 2018 and 2019, respectively, from 2017 levels of 95.1 million short tons.

The projection clearly indicates coal’s favorable run in 2017 is short-lived and the U.S. coal exporters like Peabody Energy Corporation BTU and Arch Coal Inc. ARCH among others will have to a face fierce competition from the coal companies operating in Australia, Indonesia and Russia.

Price Movement

On the back of its consistent performance, Cloud Peak stock has returned 47.9% in the last six months, outperforming the industry’s rally of 26%.


Zacks Rank & Another Key Pick

Cloud Peak currently sports a Zacks Rank #1 (Strong Buy). Another top-ranked stock in the same industry is CNX Coal Resources LP CCR having a Zacks Rank #2 (Buy). You can see  the complete list of today’s Zacks #1 Rank stocks here.

CNX Coal Resources’ 2017 Zacks Consensus Estimate has remained unchanged at $1.40 in the last 60 days while for 2018 it moved up 4.2% to $1.98 in the same time frame.

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