Tickers in this Article: BTU, ANR, WLT, ACI
The coal industry heads into 2010 hampered by an uncertain economy, weak domestic demand and regulatory risk. Despite these headwinds, the industry is optimistic that the continued strong demand from growing Asian economies will help make the year a good one.

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Carbon Control
The coal industry will continue to be haunted by ongoing discussions about regulating or restricting carbon emissions. This is a huge wild card for the industry, as the cost of any future regulations are difficult to estimate.

Although regulatory risk is high in 2010 for the coal sector, it is clear that the U.S. can't live without it, as it generates nearly 50% of all electricity. There are also 29 coal-generating plants under construction in the U.S. currently, requiring an estimated 65-70 MTPA.

Fundamentals are not good for the industry as we enter 2010. Inventories of thermal coal held by utilities are approximately 190 million tons, well above the five-year historical averages. Demand from the steel industry is still weak, although improving. Steel industry use in the United States bottomed in the first quarter of 2009, but has since rebounded to 63%.

Asian Demand
The coal industry is hoping that strong demand from Asia will boost prices in 2010. China has become an importer of coal over the last few years, bringing in net 79 million tons of coal through October 2009.

Peabody Energy (NYSE:BTU) is looking for 7% annual demand growth in the seaborne coal trade over the next few years led by strong demand from India and China for both metallurgical and thermal coal.

Analysts are also optimistic for 2010, if only because 2009 was so bad. Earnings estimates for 2010 for Alpha Natural Resources (NYSE:ANR) are expected to be $3.02 per share, up from $1.76 in 2009. Analysts also expect a similar ramp for Arch Coal (NYSE:ACI) with estimated earnings per share moving up from $0.46 in 2009, to $1.20 in 2010.

Industry executives are also optimistic for 2010. Victor Patrick, the CEO of Walter Industries (NYSE:WLT), spoke during a recent investor conference: "We are back where we have historically been, where our ability to sell our product is limited by our ability to get the product out of the mine."

The Bottom Line
The coal industry bristles with optimism as it enters 2010, sure that demand from Asian economies will bring with its large earnings growth for 2010. The wild card remains the U.S. economy and regulatory risk regarding carbon emissions. (For more, see Strike Gold With Junior Mining.)

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