Four years ago, coal companies invested $15 billion to expand their reserves. Now, they’re facing bankruptcy and removal from major stock exchanges.
The New York Stock Exchange’s move Thursday to delist Alpha Natural Resources Inc.’s shares came a week after it took similar measures with Walter Energy Inc. The Stowe Global Coal Index, a performance measure for the industry, has slumped 38 percent this year.
Coal’s challenges are legion. Cheap natural gas stole U.S. market share, taking coal’s crown as the dominant power-plant fuel for the first time in April. A strong dollar has kept exports in check, and global prices for steelmaking coal have plummeted.
“You’re getting the double blow of a secular and cyclical trough,” Anthony Young, an analyst at Macquarie Securities Group in New York, said by phone Thursday.
In 2011, when prices for metallurgical coal, used to make steel, soared to a record $330 a ton, companies including Alpha, Walter and Arch Coal Inc. bought assets in anticipation of further price gains.
“They made decisions based on assumptions for a faster-growing economy and natural gas prices that were $1 to $1.50 higher,” Young said. “You’re left with a demand environment that is much lower than people thought it would be.”
China’s appetite for coal spurred companies to boost reserves and develop new mines, said Bob Hodge, an analyst at IHS Energy Inc. in Knoxville, Tennessee. The country’s imports in 2009 were six times the 2008 levels and increased each year through 2012, data compiled by Bloomberg show.
“We’re sort of in the throes of a death spiral here,” Young said.
