Peabody Earnings Up, Coal Supercycle Just Beginning

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Peabody Earnings Up, Coal Supercycle Just Beginning
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Peabody Earnings Up, Coal Supercycle Just Beginning

Peabody Energy announced quarterly earnings this morning, with revenues up 21% to a record $2 billion and operating income up 41% to $458 million. Nice, but just below analyst estimates -- shares were up 0.7% in late morning trading.

As we've written several times this year (here, here and especially here), Peabody sees itself as the purest beneficiary of a coal demand supercycle, one spurred by breakneck growth in China and India. According to Peabody, China's power generation is up 14% so far in 2011. In June, Chinese powergen was up 16% over June 2010, with industrial production up 15%. (China's growth is not all coal-powered. Tradition Energy noted this morning that China's natural gas use in the first half was up 21% too.) India's coal demand is up 8% this year, says Peabody, with India's imports of thermal coal up 45%.

And the growth in coal is not limited to Asia. In the wake of the Japanese tsunami, power utilities are switching from nukes to coal. Peabody says the effect is especially prevalent in Europe (where Germany says it plans to mothball all its nukes), which demanded 13% more coal in June versus a year ago. Further, says Peabody, world steel production is up 8% this year, requiring an added 75 million tons of extra hard and hot-burning metallurgical coal.

The company notes that the coal supercycle is just getting underway. With 700 gigawatts of new coal-fired power plants planned for the next decade, world demand could surge by a third, or 2 billion tons per year. Growing steel production could add another 500 million tons a year of met coal. Even if Peabody's forecasts are off by half, that's still some incredible growth. And enough carbon dioxide emissions to spur the anti-coal crew to gnash their teeth all the way down to the gums.

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