Producing electricity with coal is less expenWednesday March 28, 6:02 pm Eastern Time
Coal Company Stocks See Increase
By BRAD FOSS
AP Business Writer
NEW YORK (AP) -- Coal company stocks were on fire Wednesday following an announcement by Arch Coal Inc., a major U.S. producer, that its first quarter profits would be more than double what Wall Street analysts had predicted.
Investors already had been buying up coal company stocks in recent months as the price of coal per ton has more than doubled nationwide, in part because power producers are looking for less expensive alternative to natural gas. About 50 percent of the nation's electricity is generated by coal-fired power plants.
Shares of St. Louis-based Arch were up $1.15 to $29.05 at the end of regular trading on the New York Stock Exchange. The company said profits for the quarter ending March 31 will be between 10 cents and 15 cents per share, compared with the 4-cents-per-share consensus estimate of analysts surveyed by First Call/Thomson Financial.
``We have realized exceptionally strong profit margins on the small volume of coal that was open to market-based pricing,'' said Steven Leer, president and CEO of Arch.
Shares of Pittsburgh-based CONSOL Energy Inc. also soared, rising $3.82 to $35.82 on the NYSE.
Coal produced in the Powder River Basin in Wyoming has more than doubled in the past five weeks to $10.70 a ton. At mines in Central Appalachia, coal prices have risen more gradually, to about $42 a ton, compared with roughly $22 a ton in July.
``It certainly bodes well for the negotiation of contracts in '02, '03 and '04'' with power producers, said Peter Ward, a coal analyst for Lehman Brothers in New York. ``That's translating into good news for investors.''
However, Ward cautioned against too much enthusiasm for companies such as Arch and CONSOL based on inflated spot market prices, because most power producers buy coal through long-term contracts.
Nevertheless, shares of Massey Energy Co., based in Richmond, Va., gained $1.60 to $23.60. Westmoreland Coal Co.'s stock was up 93 cents to $14.50 on the American Stock Exchange.
Electricity producers such as American Electric Power Company Inc. and the Tennessee Valley Authority [NYSE:TVB - news] said retail electricity prices won't necessarily go up as a result of higher coal prices.
Producing electricity with coal is less expensive -- even at these prices -- than with natural gas, which is at more than double historic levels.
The sharp increase in the spot market price for coal ``will only come into play if and when we need additional supply over what we've already purchased,'' said Richard Rea, who buys coal for the TVA, the nation's largest public power producer. For the current fiscal year, TVA anticipates buying some 45 million tons.
Rea said demand has outstripped supply in the past six months because mining companies curtailed production and even closed some mines after a mild winter in 2000. If the East experiences a hot summer and consumers use their air conditioners a lot, ``you'll see this kind of firm market last throughout the summer.''
Coal produced in Western states is, generally speaking, cleaner-burning -- because it has a lower sulfur content -- but not as efficient as coal mined in the East, which is mined at greater depths.