Many energy supply commentators profess an outdated view of coal as a low cost fuel with rather steady and predicable prices. That description of the coal market, which had been reasonably accurate for more than a decade before about 2002, became obsolete because of a number of factors.
- China’s rapid growth
- Lengthy, maintenance related, shut downs of large blocks of nuclear power plants in Japan and Canada
- Consolidation in coal suppliers leading to closures of marginal mines
- Transportation bottlenecks – rail constraints in the western US, and bulk carrier shortages in international trade
- Fuel switching to coal from oil and gas as those commodities experienced rapid price increases
- Booming steel market which requires more metallurgical coal
- Steady US growth in electricity demand
- Bankruptcies in smaller coal producers saddled with long term, below market price supply contracts
- Long overdue enforcement of Clean Air act requirements for emissions controls
As a result of various interactions of the above, coal prices have become more volatile and more interesting to market traders on commodity exchanges and on stock markets. Mining companies have become new darlings of Wall Street. For example Peabody Energy has moved from a low of about $9 per share at the end of 2002 to a trading range near $80 per share today, while Arch Coal has moved from a low of about $16 per share to its current price near $80 over the same period of time.
When Wall Street likes a commodity supplier, consumers should get worried.