Monthly Indicators Suggest a Tough 2Q15 for Coal Producers
Another key indicator for coal industry investors is the monthly electricity output data published by the U.S. Energy Information Administration (or EIA). The current report is for April 2015, and it was published on June 25. Electricity output in the United States came in at 293.6 million megawatt-hours (or MWh) in April 2015 compared to 324.2 million MWh in March 2015 and 296.8 million MWh in April 2015. The electricity output number was the lowest for the last five years for April.
Coal’s market share
Coal’s market share in electricity generation fell drastically to 30.3% in April 2015 compared to 33.5% in March 2015 and 37.0% in April 2014. Moreover, natural gas’s market share, at 31.5%, surpassed the share of coal for the first time. Coal’s fallen market share in April 2015 suggests a tough 2Q15 for coal producers. Peabody Energy (BTU) has warned that its 2Q15 earnings will be worse than expected. Valuations of coal producers including Alpha Natural Resources (ANR), Arch Coal (ACI), and Cloud Peak Energy (CLD) have dwindled in 2Q15 on continued weakness in the industry.
Why is this important?
Since thermal coal is used mainly in electricity generation, electricity output is an important indicator to track thermal coal’s demand outlook. To get more insight, we should also look at how much coal is contributing to total electricity output.
Electricity output in the United States was stagnant after the crisis in 2008. Consumers were cautious about using electricity. Also, new technology made appliances more efficient in terms of electricity usage. Stagnant electricity demand and rising competition from natural gas as a fuel for power generation led to a decrease in coal’s share in electricity generation.
Browse this series on Market Realist: