Coal is a sick dragon, and the bond market wields a heavy sword
Coal is having a hard time lately. U.S. power plants are switching to natural gas, environmental restrictions are kicking in, and the industry is being derided as the world’s No. 1 climate criminal. Prices have crashed, sure, but for a real sense of coal’s diminishing prospects, check out what’s happening in the bond market.
Bonds are where coal companies turn to raise money for such things as new mines and environmental cleanups. But investors are increasingly reluctant to lend to them. Coal bond prices tumbled 17 percent in the second quarter, according to an analysis by Bloomberg Intelligence. It’s the fourth consecutive quarter of price declines and the worst performance of any industry group by a long shot.
Bonds fluctuate less than stocks, because the payoff is fixed and pretty much guaranteed as long as the borrower remains solvent. A 17 percent decline is huge, and it happened at a time when other energy bonds—oil and gas—were rising. Three of America’s biggest coal producers had the worst-performing bonds for the quarter:
Alpha Natural Resources: -70 percent
Peabody: -40 percent
Arch: -30 percent
Coal powered the industrial revolution and helped lift much of humanity out of poverty, but its glory days have reached an end. Here are four of the biggest pressures facing the industry:
1. The U.S. Grid Is Changing
About 17 percent of U.S. coal-fired power generation will disappear over the next few years, according to an analysis by Bloomberg New Energy Finance (BNEF). Obstacles include age, the abundance of cheap natural gas, and new EPA rules to cut pollution.
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