Tuesday, October 6, 2009

Natural Gas Prices Up Today at $4.96/MMBtu

By Kerry Grace Benn


NEW YORK (Dow Jones)--Coal companies' shares rose Monday as natural gas prices increased and after Barron's said shares of Peabody Energy Corp. (BTU) could double in the next few years because of its exposure to Australia.

Natural gas futures climbed about 25 cents, or 5.3%, to $4.96 a million British thermal unit as traders looked ahead to forecasts of cold weather in the major gas-consuming regions. Meteorologists' predictions of brisk weather in the Midwest and Northeast over the next two weeks were supporting prices; cold temperatures boost the demand for natural gas for heating.

Expectations for gas prices in the near term support investor interest in coal, because over the past decade or so, there's been a tight correlation between an appetite for coal stocks and the outlook for natural gas, Stifel Nicolaus analyst Paul Forward said.

Plus, coal stocks have been under pressure for the past few weeks, Johnson Rice's William Burns said. With a market upturn like the one going on Monday, the stocks will rise at a multiple of what the market is doing because they tend to move with the market, he said.

In recent trading, Patriot Coal Corp. (PCX) had gained 6.5% to $11.61, Massey Energy Co. (MEE) 6.1% to $28.37 and Consol Energy Inc. (CNX) 6.2% to $45.69. Peabody was up 4% at $36.60 and Arch Coal Inc. (ACI) 4.7% at $21.45.

Forward at Stifel Nicolaus added that the positive Barron's report on Peabody could have helped the sector a bit, but the report focused on Australia, and Peabody is the only U.S. coal company that has large exposure in Australia. That country is mostly an export market into Asia, which means Peabody has exposure directly into recovering markets in both metallurgical and thermal coal in China and the rest of Asia, he said.

Barron's said Monday that global coal use is expected to jump 55% by 2025, propelled by growing demand from China and India. It said that's good news for companies like Peabody that have a growing presence in Asia. Peabody has invested heavily in mines in Australia in recent years and gets about 10% of its total production from the country. The production of low-cost, high-quality Australian coal could account for about one-third of the company's pretax profits, Barron's said.

-By Kerry Grace Benn, Dow Jones Newswires; 212-416-2353; kerry.benn@dowjones.com

No comments: