Talk of a potential ban on Russian coal exports by the European Union has Peabody Energy (NYSE:BTU) rising today. In further effort to curb its dependency on Russian energy, the E.U. has proposed banning all coal imported from Russia. The momentum has pushed BTU stock into the green. But some experts have raised concerns that it will be short-lived.
What’s Happening With BTU Stock
News of the E.U. proposal was quick to send U.S. coal mining stocks up this morning. BTU stock jumped more than 7% in early trading.
Unfortunately, this quick wave of momentum seems to already be subsiding. While BTU stock is still in the green, it is up less than 2% for the day as of this writing. Other coal miners, such as Arch Resources (NYSE:ARCH) and Consol Energy (NYSE:CEIX) have followed the same pattern of decline after surging this morning.
Why It Matters
At first glance, it’s easy to see why coal stocks would be rallying this morning. If the E.U. does end up banning Russian coal exports, it will need to find new providers. However, as Bloomberg writer Will Wade argues, that doesn’t instantly mean that U.S. miners should be expected to fill the void. As he states:
“The long-term prospects for the dirtiest fossil fuel are grim as concerns about climate change intensify, and miners have had little incentive to invest in new capacity. In the U.S., the number of producing coal mines slumped more than 60% from 2008 through 2020. The nation’s remaining miners have already sold most of their output under long-term contracts and have few spare tons to deliver.”
Additionally, coal mining companies have also faced constraints posed by both labor market and supply chain shortages. And while names like BTU stock have seen recent boosts due to the energy crisis, their industry landscape doesn’t look well-positioned to expand operations to overseas. Yesterday, Wade reported that while coal prices have recently reached their highest point since 2008, a renewed reliance on coal mining was already raising concerns from climate scientists. All signs point to the underlying conclusion that coal mining isn’t the solution to the current energy crisis.
What It Means
This morning’s rally was clearly a flash-in-the-pan moment for coal mining stocks. That doesn’t necessarily mean that this is the time for a bearish play on the sector. However, it also doesn’t mean that a bullish play is advisable.
BTU stock is rated only as a “moderate buy” on TipRanks. While it has surpassed the average price target of $23, shares remain below the highest price target of $32.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
