MT ArcelorMittal

By Dave Sebastian

Investors are growing bearish on coal stocks amid concerns about the export market and falling prices in a slowing global economy, investment bank Seaport Global Securities LLC said in a report Tuesday.

U.S. steam coal exports are slated to decline 12% this year and an additional 25% in 2020, Seaport said. The decline could create a domestic supply glut next year, potentially hurting the utility market, if steel demand slows and prices don't rebound.

Shares of coal producers Contura Energy Inc. (CTRA), Ramaco Resources Inc. (METC), Teck Resources Ltd. (TECK), Peabody Energy Corp. (BTU) and CONSOL Energy Inc. (CEIX) have slumped over the past 12 months.

Meanwhile, shares in Arch Coal Inc. (ARCH) and Warrior Met Coal Inc. (HCC) have gained 14% and 5%, respectively, over the past 12 months.

Average per-ton spot prices for coal from the Northern Appalachian region have fallen to about $53 after peaking above $70 in March, according to the Energy Information Administration, citing data from SNL Energy. Meanwhile, Central Appalachian region prices have fallen to about $59 a ton from nearly $84 a ton in early January.

U.S. coal producers have been hungry to supply overseas markets such as China and Europe in recent years as domestic coal consumption has declined. Lower natural gas prices have also hurt coal's competitiveness in the domestic market.

Prices of natural gas--which has grown its share of the U.S. energy production in recent years--have slid below $2.50 per million British thermal units since the end of May. Natural gas futures hit $4.80 per million British thermal units in mid-November.

The U.S. steel industry--a key end market for domestic coal production--has also been one of the world's weakest steel markets of late, according to Seaport. Prices for hot-rolled steel have fallen to between $520 and $580 a ton, the report said, citing data from CRU Group's Steel Market Update. About a year earlier, U.S. hot rolled steel fetched about $900 a ton.

China, which produces half of the world's steel, has seen blast-furnace profitability weakening in recent months as steel prices have fallen and prices of raw materials such as iron ore have increased, according to the report. Steel prices are also unlikely to rebound as trade tensions remain high between the U.S. and China, the report said.

"It becomes imperative for steel prices to rise greater than their key raw material ingredients," the report said. "That simply hasn't happened."

But there is a string of hope in China for U.S. coal exporters: Chinese metallurgical coal customers are still poised to import coking coal, as it is cheaper to import products than to source coal domestically, the report said.

ArcelorMittal (MT), the world's largest steel producer, recently cut production twice in the European Union, the report said, indicating "all is not well on the continent."

"The company continues to cite weak demand and rising imports as key reasons why it was forced to curtail production," the report said. "Steel prices on the continent indicate this weakness."

Write to Dave Sebastian at dave.sebastian@wsj.com

(END) Dow Jones Newswires

June 18, 2019 13:35 ET (17:35 GMT)

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