Why Peabody Energy And Other Coal Stocks Rallied Today
Key Points
The LNG supply crunch is forcing Asian economies to increase the usage of coal.
One analyst predicted a 46% increase in coal prices, should the blockage of the Strait of Hormuz last a few more months.
Coal stocks rallied across the board, with Peabody's Australian operations set to be one of the main beneficiaries.
Shares of Peabody Energy (NYSE: BTU) rallied 7.8% on Tuesday.
The coal giant surged today on reports that Asian countries may lean harder into coal generation for their electricity needs, given that the war in Iran has curtailed liquefied natural gas supplies.
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As LNG supplies are disrupted, Asian countries will lean back on coal
In recent days, a main LNG export facility in Qatar was damaged, taking 17% of Qatar's LNG supplies offline, with repairs estimated to take three to five years to complete. Analysts estimate the attacks have taken 12.8 million tonnes per annum off the market. That only equates to about 2.5% of the global supply; however, there is also an ongoing stoppage of cargo flows through the Strait of Hormuz, which has taken even more supply offline. And certain markets in Asia will be hit especially hard, as they are more dependent on LNG cargoes specifically from the Persian Gulf.
A long-term LNG supply crunch means these countries will likely increase the use of coal plants, leading to a subsequent increase in coal demand and prices.
Coal prices have been on the rise since the conflict broke out, but today an analyst from Bloomberg Intelligence (BI) estimated that thermal coal prices could rise another 46% if the war continues for months.
Peabody is a U.S.-based coal miner, but it also has operations in Australia, exposing it to the high demand from Asian countries. Moreover, higher global LNG and coal prices tend to increase domestic prices as well, given the global nature of energy demand and supply.
Image source: Getty Images.
Traditional energy stocks are having a moment
While these stocks were thought of as dinosaurs as recently as a few years ago, fossil fuels have seen an increase in demand as the renewables revolution is hitting a roadblock, partially due to the Trump Administration's policies, as well as a slowdown in electric vehicle adoption in the U.S. and an acceleration of electricity demand for AI data centers.
All of these factors were already bolstering demand for traditional energy sources -- even coal, the dirtiest form of electricity generation. But now, with energy supply disrupted by the war, these stocks are seeing even bigger rallies.
The war with Iran is reminding investors why traditional energy stocks belong in most portfolios as a hedge against geopolitical disruption, as we're seeing now.
Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.