Goldman Sachs Downgrades Coal Sector Due to Weak Demand and Prices

Bloomberg
December 7, 2011

Coal Shares Slip After Goldman Sachs Downgrade
Associate Press

Goldman Sachs lowered its view on the coal sector from “attractive” to “neutral” this week, causing a broad decline in stock prices for coal companies, led by a 5.1 percent decline in Peabody Energy Corp. shares, notwithstanding Peabody’s exposure to Asia, where coal demand is moving in a favorable direction. Goldman analyst Andre Benjamin wrote that it is unlikely that the coal sector will perform any better than other stocks because of flat U.S. heating prices, falling prices for coal, and lower volumes in the U.S., as well as continued cost pressures. Benjamin’s analysis also stated that demand for coal is likely to be hurt by the impact of proposed federal regulations on coal plant emissions (Goldman predicts that 51 gigawatts of coal-fired power plant capacity is on its way out), lower gas prices next year and in 2013, and lower demand growth as customers become more energy-efficient. Benjamin expects coal prices to be stable in 2012 and to fall in 2013 and 2014 as growing supplies catch up with demand.

In its note to coal-sector investors, Goldman named Pennsylvania-based Consol Energy as a bright spot. That is primarily because Consol has significant natural gas and oil assets in the Marcellus and Utica shale basins underlying Ohio, Pennsylvania, New York and West Virginia. Shares in Consol Energy declined by only 2.7 percent following the Goldman downgrade for the sector.


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