Arch Coal Emerges From Bankruptcy but Nothing Has Changed
Arch Coal (ARCH) says it has completed its restructuring program, emerging from Chapter 11 bankruptcy. Its stock will begin trading on the NYSE under the ticker ARCH.
The company says it has around $300 million in cash on its balance sheet and just $363 million in debt. Debt levels stand at just 7% of its level prior to restructuring. Project spending equates to a manageable $55 million in capital spending for 2017.
Many analysts have initiated coverage with outperform ratings, with one issuing a $71 price target.
Coal is on a long path to zeroDon't trust the hype. As a post-bankruptcy stock, Arch will undoubtedly see its stock price oscillate wildly. But long-term, coal is dead.
China is almost completely responsible for the global growth in coal consumption since 2000.
That major driver is likely no more.
"The golden age of coal in China seems to be over," the International Energy Agency said on Friday in its Medium-Term Market Report to 2020, adding that a "peak coal" demand scenario was now probable due to stagnating housing and infrastructure development.
It also warns of lower-than-expected power demand as the use of electricity drops in heavy industry will also contribute to the decline in coal consumption.
When an industrialized country shifts over to a service-based economy (like China is doing right now), coal use has historically peaked in a hard way. China's coal demand is expected fall to 2.64 billion tons by 2020 from 2.84 billion in 2014. Global demand should dip to 5.51 billion tons in 2020 from 5.54 billion in 2014.
Those secular forces will inevitably take the wind out of any coal price surges.
"The continuous pressure from shale gas in the United States, stronger climate policies, and especially, the overcapacity and slowdown in China all contribute to the oversupply. This glut will be even more acute if a peak coal demand in China becomes real," the IEA said.
If you're thinking about picking up shares of Arch coal, don't hold them too long: long-term forces will push coal prices lower and lower as the years go on.