Recent predictions of a greater global slowdown in demand for metals, and related natural resources that fuel industries, took many metals, mining and natural resource stocks down even further. Many of these stocks neared their 52-week lows. Investors wonder what the prospects are for the metals and mining sector in this blunted economy.
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"The Rock That Burns"
Coal, historically regarded as a wonder resource, "the rock that burns," received a jolt when Alpha Natural Resources (NYSE:ANR) revised its shipment guidance for 2011. The metallurgical coal producer announced it would ship in a range of 102.5 million tons to 109.5 million tons compared to the range of 104 million tons to 112 million tons it had previously announced. The company cited lower-than-expected production from two of its mining areas, a force majeure, or unavoidable circumstance overriding contractual obligation from a met coal exporter, but most importantly, unexpected slowing demand from Asia. It also forecasts lower-than-expected shipments of its eastern thermal coal. The market wasted no time in taking down Alpha Natural and other coal stocks. (For related reading, see Commodity Prices And Currency Movements.)
Falling Met Coal Prices
The reversal, or falling in prices of met coal which had been rising for several months was seen to pressure coal producers such as Alpha Natural and Patriot Coal (NYSE:PCX). Alpha Natural mentioned in its shipment report that not only were its shipment forecasts lowered, but with less volume, its cost of sales per ton would rise. Other coal producers such as Arch Coal (NYSE:ACI) has seen its stock recently trade at over $16, not far off its 52-week low of $14.28.
The rout of coal stocks was fairly thorough. Although stuck with the news of lower demand from Alpha Natural, Consol Energy (NYSE:CNX) provided a bright spot several days after Alpha Natural's report, as it surprisingly offered guidance of greater demand. Consol said that exports which it originally tabbed at 10 million tons, would likely be in a range of 10 million tons to 10.5 million tons. Consol also said that export demand would remain strong. This the market much liked as it hiked Consol shares up over 9%, and took many of the other coal names up with it. Most of the coal stocks, however, remain near their 52-week lows.
Not Just Coal
The price of copper recently fell to a 52-week low of $3.23 per pound in U.S. trading. Stocks of major copper miner Southern Copper (NYSE:SCCO) traded recently at $25.86, just off its 52-week low of $25.06. Southern Copper had $6 billion in revenue during the last twelve months, along with $1.99 billion in net income, and pays a variable dividend with a current yield of 8.47%. An initial reading of lower-than-expected demand in China for copper initiated the price drop in the metal. Other large diversified miners such as Vale (NYSE:VALE), BHP Billiton (NYSE:BHP) and Rio Tinto (NYSE:RIO), known for their iron ore trade but active in other metals production, have all seen their stocks pushed down hard to near 52-week lows recently.
The Bottom Line
Although there is legitimacy to the lowered expectations for some of the coal producers, and slowing demand is seen for Chinese industrial production, the market needs to keep this in perspective. Chinese steel production rose 6.2% in the first half of 2011 compared to the first half of 2010. There may still be robust demand for met coal in China for the rest of the year, as the Consol Energy estimates suggest. Even if the demand is slowed, due to a global recession, these mining stocks are on sale when gauged against their long-term value. Coal and the metals are a long-haul play, and long-term investors can take great advantage of this opportunity. (For related reading on energy, see Peak Oil: What To Do When The Wells Run Dry.)
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