Coal demand has increased in the United States due to elevated natural gas prices. Furthermore, spot coal prices in central Appalachia have surged to their highest level in more than 12 years. Thus, we think buying the dip in fundamentally strong coal stocks SunCoke (SXC) and Ramaco (METC) could be profitable. Read on.The use of coal is resurgent in the United States after a pandemic-driven decline. U.S. power plants are set to ignite 23% more coal this year, marking the first increase since 2013. Coal is expected to generate 24% of electricity in the country this year. Furthermore, the spot coal prices in the central Appalachia, a benchmark for the Eastern US thermal coal market, rose more than $10 last week to $89.75, its highest increase in more than 12 years.
According to the U.S. Energy Information Administration, U.S. coal-fired generation in 2021 is expected to be 22% more than in 2020, mainly because of elevated natural gas prices. However, coal supplies are tight because production was halted for several months, and coal mines operated at reduced capacity, during the worst of the pandemic. And because output is unlikely to match the growing demand, prices should keep soaring.
Given this backdrop, we think fundamentally sound coal stocks SunCoke Energy, Inc. (SXC) and Ramaco Resources, Inc. (NASDAQ:METC) could be the ideal bets on their recent price dip.