Shares of U.S. coal mining companies plunged Monday, battered by weak economic data from China, the overall stock market slide and the prospect that President Obama will announce plans for regulating greenhouse gas emissions from existing coal plants.
“It was the triple whammy,” said James Rollyson, a coal analyst with the investment firm Raymond James.
In addition, coal company investors were anxious over news Monday that the Supreme Court would review the D.C. Circuit Court of Appeals decision to reverse the Cross-State Air Pollution Rule, one of the Obama administration’s key tools for improving air quality by forcing coal-fired power plants to install pollution controls.
Consol Energy shares dropped 5.8 percent, Peabody Energy fell 7.2 percent, Cliffs Natural Resources tumbled 7.6 percent, and Alpha Natural Resources slid 8 percent. Walter Energy, a smaller company, sank 16.1 percent after pulling back on a planned $1.55 billion credit refinancing.
Obama’s plan to deliver a major address on climate change Tuesday played a key role, analysts said. Administration officials said the president will pledge to force existing coal plants to reduce carbon dioxide emissions, a strategy that is likely to force many of them to close.
“On the CO2 front, that’s the million-dollar question,” Rollyson said. “Heretofore the administration has only looked at setting limits for new capacity and not building a bunch of new plants today. If tomorrow [Obama] comes out and says he is going to take a step further and look at doing something on existing capacity, that would be a different issue. ”
A limit on carbon dioxide emissions might be designed to phase in during the early 2020s. But the owners of many coal plants say a rule for existing coal plants could bite earlier. Regulations for mercury emissions take effect between 2015 and 2017. Since the average U.S. coal plant is more than 40 years old and not highly efficient, some coal plant owners will not make major investments in equipment to control those emissions if they will be able to keep plants open for only a few additional years.
Environmental groups welcome that. “He’s laying out a plan to get to the largest point sources of carbon,” said Bruce Nilles, a Sierra Club lawyer who has been fighting to reduce the number of coal plants in the United States. “It is a chance to show the rest of the world that we’re serious.”
But Obama’s plan would hurt coal-mining firms. The National Mining Association trumpeted letters written to Obama by the governors of seven states — Indiana, Kentucky, Mississippi, North Dakota, Pennsylvania, Virginia and West Virginia — asking him to block Environmental Protection Agency rules on existing coal plants.
“Political and business leaders in America’s heartland are increasingly aware of the threats posed by these ill-advised regulations proposed by the EPA,” said Hal Quinn, president of the association.
Rollyson said coal-mining stocks were also driven down by concerns about the Chinese economy, which over the past few years has been the strongest market for metallurgical coal. He noted that the price of metallurgical coal sank to the lowest levels since 2009, barely 10 percent above the levels in that dismal economic year.
“The outlook out of China is indicating that maybe things aren’t as rosy as before,” Rollyson said. He said that was bad news, “since China’s demand has been driving a lot of the bus here.” He said that would hit especially hard at firms producing metallurgical coal used in the manufacture of steel. “China has been the only growing market for that,” he said.
Other recent news has also hurt coal stocks. Last month, Kinder Morgan canceled plans to build a coal export terminal at the Port of St. Helens in Oregon. It was the third of six controversial export terminals in the Pacific Northwest to be shelved.
On Monday, NRG Energy, one of the country’s biggest utilities, announced that it would convert two coal-fired power plants — in New Castle, Pa., and Avon Lake, Ohio — to gas-fired units.
Meanwhile, the Kansas City, Kan., municipal utility also announced that it would close one of its coal plants. The Sierra Club’s Nilles said that it was the 147th coal plant closed or slated for closure since the organization began its campaign to close a third of the nation’s coal plants. He said the group was halfway to its goal.