Peabody's the name if Asian coal is the game

08/10/2010 12:30 pm EST


Jim Jubak

Founder and Editor,

(I am on vacation until August 24. During that time Jubak Picks will operate on a reduced schedule of one or two posts a day.)

If China is the story in coal—and I think it is since China is now the No. 1 energy consumer and uses about three times as much coal as the United States—then Peabody Energy (BTU) is the story among coal companies.

In reporting its second quarter earnings the company said that it expects global net coal imports to grow by 30% in 2010.

China is the driver of demand.

But the country isn’t alone. India’s coal imports are up 22% in 2010 and Peabody estimates that imports will finish the year up 20% from the total for 2009.

In January Peabody forecast that it would sell 240 million to 260 million tons of coal in 2010, compared to 244 million tons in 2009, because of increased demand in Asia.

Peabody, the largest U.S. coal producer, has been gradually adding assets in Australia in an effort to move closer to the fastest growing end markets. Peabody projects that it will sell 27 million to 29 million tons of Australian coal in 2010. That’s up from an earlier forecast of 26 million to 28 million tons.

Someday coal may hit the wall because the world’s countries have decided to implement an enforceable global climate change program to reduce carbon emissions, but Peabody hasn’t seen any effects from the half-hearted (or less) efforts so far. Coal is actually gaining market share at utilities and consumption in power generation is up 6% through the first half of 2010 from the same period of 2009. Thanks to the increased demand stock piles look like they’ll be down to normal levels by the end of 2010. That should help prices that Peabody already calls good.

In its July 20 second quarter earnings report the company beat Wall Street earnings estimates by 6 cents a share, reporting 69 cents for the quarter, and missed on revenues by $20 million, reporting $1.66 billion. Peabody confirmed earnings guidance for all of 2010 of $2.60 to $3.15 a share.

Full disclosure: I don’t own shares of any company mentioned in this post in my personal portfolio.
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