Arch Coal Inc (ACI)- declared a chapter 11 banktrupcy today. Says on wikipedia it produces 15% of the US coal (second largest coal producer in the US). Peabody energy is the biggest coal producer in the US, and it has a shitty balance sheet. Will it have a big effect on the US (or the world for that matter) electricity prices, since half the worlds electricity is produced with coal and coal producers are starting to get fucked real bad?
Picture related: coal price chart
>and coal producers are starting to get fucked bad
I've been following the coal industry for 5 years now. It's literally "how long till this company bankrupts: the game"
I still remember trading patriot coal, man, what days those were. When BTU was trading at like 20 times its current price. Good days. It was truly a perfect storm of bad timing for coal; no other industry has faced getting fucked so hard every single way since I can remember.
I recently stopped messing with coal holdings later in 2015 because pretty much everything was gonna hit the dust anyways and coal was just becoming way too negative and volatile.
Coal stocks in 2014/2015 had a terribly obvious habit of rebounding drastically.
Go up 15%? It'll be going down 16% tomorrow. Go down 10%? It's going up 5% tomorrow, etc (not including bankruptcies)
That was the habit that doubled the money that I put into coal every year.
I didn't perform too well later in 2015 so I'm taking a break for now, but hopefully we'll see a bullish coal market... One day.
Peabody has always been my favorite of the group and im glad it's still around, even after patriot, James, Walter, alpha, arch, etc filed their chapter 11s in the past few years.
Keep in mind that there are still loads of stocks involved in coal: peabody, consol, cloud peak, cliffs, alliance resource, suncoke, and those are just American companies.
Back to your question though: keep in mind that chapter 11s don't blow up these companies and ruin them. They're still around, just restructuring.
Peabody would be having a much easier time if all of its bankrupt competitors just suddenly stopped producing coal entirely. But, that's not the case.
If we really needed coal that badly, these companies wouldn't be suffering from such terribly low coal prices which in turn destroy their profits.
China is still sitting on a trillion million billion tons of its own coal despite its massive imports. Australia and Indonesia continue to supply coal to whoever wants it in Asia, the powder River basin in USA continues to export the quality coal that quality people want (through companies like peabody) and it's not like it's gonna stop anytime soon. Even if BTU files a chapter 11, they or somebody somewhere will be mining the PRB whenever someone wants it. Countries are essentially getting shitloads of cheap (but smoggy) energy right now, even if your electricity bill doesn't show it. The middleman is profiting big time though. India was supposed to start importing coal bc their national coal mining company sucked dick but I forget what happened with that but it's irrelevant in the grand scheme of energy anyways.
As for the western world, the situation isn't different. Coal will not be missed in the USA so long as our darling natural gas stays so low in price. Obama loves to brag about how he circlejerked with the EPA to reduce coal emissions but it's all bullshit; they only got away with it cause natty was cheap enough for companies to switch to.
That's partially why coal is so cheap, atm. Nat gas and coal prices are correlated. Oil is another thing that dabbles with nat gas but that's going off topic.
The point here is that the energy sector is a pretty close family and that coal is going nowhere in value if our energy scene remains to suck ass.
Yes, that means more coal company bankruptcies are likely to happen.
However, with the coming of a big liquid natural gas export scene (supposedly), with increases in renewable and or nuclear energy technology (hopefully), coal is, at best, staying put and profiting enough to survive one day. There isn't much room for growth in the coal industry in the foreseeable future unless clean coal technology somehow becomes feasible (they've been trying for years and nothing works) and/or natural gas prices skyrocket for god knows why. Some REAL SHIT would have to happen like it turns out fracking kills young babies or something.
You can look at emerging consumers like India or African countries who suffer through "energy poverty" atm but I do not know why they would be the savior of the coal industry anytime soon.
>BUT BACK TO YOUR QUESTION: no, electricity prices will not suffer any time soon. Like I said, USA will just jerk off its natural gas more if coal ever gets more expensive from lack of supply. They both work. When one is too expensive, you switch to the other. Natural gas prices MUST increase to create a reasonable demand for coal that goes beyond what is currently happening (ie coal companies on their knees going "pls take our product for pennies")
I don't claim the knowledge to say what will happen to electrically prices globally, but there should not be much anything of consequence. Coal companies are suffering but they will still be here 5, 10 years from now. And they will be producing buttloads of coal just to keep up.
Coal all day baby, it'll be here for a while, countries won't have to worry about it, though coal mining companies will have to worry about profits for a long time
(RIP King coal you were good)
(Pic related, coal shareholders for the last 5 years)
>Will it have a big effect on the US (or the world for that matter) electricity prices
No. The Arch Coal chapter 11 filing is what is known as a "prepackaged bankruptcy" or "pre-negotiated bankruptcy." The company isn't seeking bankruptcy protection because it has run out of options. Rather, it's using the bankruptcy process to force dissident debt holder to accept a restructuring plan than has already been approved by a majority of the company's creditors.
Because chapter 11 provides a statutory mechanism for forcing all creditors to accept modifications to their debt if a majority of the creditors (in number and dollar holdings) approve the plan, bankruptcy is a not uncommon options when dissident minority creditors attempt to block a restructuring.
By filing bankruptcy with a majority of creditors already on board with the plan, the company will spend less time in the court process (and incur fewer fees and less uncertainty) than a typical chapter 11.
And this is becoming a common tactic for coal companies. See Walter Energy, Patriot Coal, among others. Why? Because the debt restructurings are vitally needed, and it's less expensive to force a deal down the throats of holdouts rather than pay them a ransom to get a consensual deal.
I can't speak to the prospects of the coal industry generally (and I'm certainly not going to deal with the giant wall of text the other guy posted). But you asked if this bankruptcy is a sign of impending trouble. The answer is "no" because this particular bankruptcy is a solution not a problem.
If you're going to spend this much time and energy on the coal industry, you should take the time to learn that not all chapter 11's are the same.
>you should take the time to learn that not all chapter 11's are the same.
Never said they were, mate. All I mentioned in my post was that all the mentioned bankrupt coal companies went through it and that it doesn't mean that they suddenly stop all coal production.
Which means that there isn't going to be a sudden drop in supply simply because of these bankruptcies, which means that coal prices won't magically go up, which means that electricity prices won't magically go up.
If that were the case, competitor companies like peabody would have gone up in value today for "less competition", not drop 20%
I singled out your posts because you mentioned bankruptcies several times as if they were negative developments for the industry. My point is that some types of bankruptcies are actually a good sign because it shows that the industry is being proactive about addressing its systemic issues.
Similarly, the airline industry was much stronger after the wave of chapter 11 cases several years ago because they allowed the industry to restructure their labor contracts. The industrial manufacturers survived the asbestos crisis because of bankruptcies. Even earlier than that, the railroad industry used bankruptcy to stabilize and transition into the modern economy.
The point is that regardless of what you know or don't know about the industry, you need to understand how and why a company is using chapter 11 before you can declare whether it's a bad or good sign. Too many times people hear "bankruptcy" and assume the worst, and that's just naive.
That's fair. I should have included that chapter 11s don't mean the ruining of an industry, though I do think I was skirting around that point especially in my second post. I meant that while no company wants to do a chapter 11 for no reason, they will want to if it means a cleaner slate for when the industry recovers a little.
A wave of bankruptcies hitting a sector does not spell permadoom but it does mean that it is, at least in the moment, in something of a pickle concerning company profits.
What the point of my discussion of bankruptcies was supposed to be was that, like you said, this does not mean coal production is gonna be nuked and we're gonna have an energy crisis. It just means that you should be more cautious about investing in companies in the meantime.