Nomura Securities on U.S. Coal: PRB Prices Recovering But Excess Capacity and Further Destocking Limit Upside

Nomura Securities on U.S. Coal: PRB Prices Recovering But Excess Capacity and Further Destocking Limit Upside

Analyst, Curt Woodworth, said, "We believe PRB prices will recover back to ~$12/t by early 2013, up from the current spot levels near $10/t, but not rise meaningfully higher above this level owing to surplus capacity and inventory levels that stay high relative to historical norms. We believe coal-to-gas switching is forecast to remain a key overhang for the CAPP market and prevent a more rapid inventory normalization process. Inventory reduction and production cuts stabilizing thermal market. While the PRB market should tighten more significantly by mid 2013, when ~20-30mt of reverse switching should occur based on the forward gas strip, there remains the issue of significant excess capacity. We reiterate our Reduce rating on Arch Coal (NYSE: ACI)(PT $6) owing to HV-B exposure."

Nomura maintains a 'Buy' rating on Alpha Natural (NYSE: ANR) and CONSOL Energy (NYSE: CNX). PT $11 and $45, respectively.

Nomura maintains a Neutral on Peabody (NYSE: BTU) and Walter (NYSE: WLT). PT $25 and $70, respectively.

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