U.S. coal sector predicted to see 'wave of bankruptcies'
The outlook for U.S. coal producers is "increasingly bleak," and the sector is likely to undergo "a wave of bankruptcies," Macquarie Research warned in a note to investors today. WHAT'S NEW: After Macquarie's commodity team lowered its forecast for met coal prices by $5 per ton for 2015 and 2016, analyst Anthony Young warned that U.S. coal prices will no longer move in conjunction with international coal prices. This decoupling, which will feature declines in U.S. coal prices, "will be a painful, but necessary, step to force rationalization on U.S. producers," and will continue until supply drops to levels that are balanced with demand, Young believes. The price decreases that occur during the process are likely to result in production cuts and bankruptcies over the near-to-medium term, the analyst predicted. Noting that one of the more prominent companies in the sector, Peabody Energy (BTU), recently had to pay a 10% interest rate on bonds it issued, Young wrote that the high interest rate bodes badly for other coal producers. The high interest rate will make it harder for other names in the sector to refinance their debt, leading to cuts and liquidity squeezes, he warned. Young reduced his price target on Alpha Natural (ANR) to 60c from $1.15, on Arch Coal (ACI) to 90c from $1.25, on Peabody to $5.30 from $6.40, and on CONSOL (CNX) to $29.50 from $31.50. He reiterated an Underperform rating on Alpha Natural, and Neutral ratings on Arch Coal, Peabody, and CONSOL. He kept an $8 price target and Neutral rating on Cloud Peak (CLD). PRICE ACTION: In late morning trading, Alpha Natural fell 5.9%, Arch Coal dropped 2.4%, Peabody rose 2%, CONSOL fell 0.7%, and Cloud Peak added 0.5%. ANR ACI BTU CNX CLD