Since the beginning of industrialization, coal has been one of the leading energy sources in the world. In the recent years, the global production of coal has been steadily increasing and reached nearly 168 exajoules in 2019, according to Statista. Although developed countries have been pushing for more renewable energy sources for power generation, at least 38% of the electricity generated in the world is still produced by coal. The top producers of coal in the world include China, India, US, Australia, and Indonesia. One of the global leaders of coal mining in the US is Arch Resources Inc (NYSE: ARCH). Among the strongholds of U.S. coal mining are the Appalachian states West Virginia, Kentucky, and Pennsylvania, as well as Wyoming in the West.

According to the International Energy Agency’s report on the coal industry, the world’s biggest producer, importer, and consumer of coal is China which accounts for more than 65% of global coal consumption. Coal remains a cornerstone of electricity generation in China, India, and other Asian nations, which together account for around 75% of global coal demand.

However, the World Economic Forum has named coal to be the single largest source of global energy-related CO2 emissions which can have disastrous effects on the environment. This has led to many developed countries making the shift from coal to other renewable sources of energy to meet their energy demands. Hence, the coal industry is seeing a decline globally in the past few years. In 2019, global demand for coal decreased by 1.8% and power generation from the resource declined by 3%. On the contrary, electricity generation from renewables increased in the year, further squeezing coal and gas generation. The global coal consumption is estimated to have fallen by 7%, or over 500 million tonnes, between 2018 in 2020 and by 2025, the demand for coal is estimated to flatten out at around 7.4 billion tonnes.

Coal Stocks Plummeting Amid Carbon Reduction Push

Almost all coal stocks are plummeting amid lack of demand and increasing pressure on coal companies to cut emissions. For example, Warrior Met Coal Inc (NYSE: HCC) stock recently fell after Raymond James analyst Lucas Pipes said that several coal companies will face negative consequences of the latest announcement of China to reduce carbon emissions. The analyst downgraded Warrior Met Coal Inc (NYSE: HCC) to Neutral from Buy and decreased his price target to $22 from $28.

Major energy companies are starting to comply with ESG metrics given the global push towards green and sustainable energy. For example, in its latest quarterly report, Arch Resources Inc (NYSE: ARCH) said that its subsidiary’s lost-time incident rate was about 40% better than the industry average. Arch Resources Inc (NYSE: ARCH) said it also continued to reduce its Scope 1 and Scope 2 GHG emissions. The company has cut these GHG emissions by 55% since 2013.

In 2020, countries like Korea and Japan made pledges to reduce coal in the coming years, while Vietnam, Philippines, and Bangladesh are downsizing their planned coal expansions. Countries like Egypt have even cancelled their coal development programs. The UK also plans to phase-out their coal-fired power stations by 2024. There is no doubt that the future of the industry looks very uncertain, and the losses experienced by coal companies are hard to ignore. CONSOL Energy Inc. (NYSE: CEIX) lost its stock value by 44%. According to S&P Global, the stock prices of other large producers such Peabody Energy Corporation (NYSE: BTU), and Alliance Resource Partners, L.P. (NASDAQ: ARLP) have lost a fifth of their value or more since the beginning of the year.

Coal Stocks for Long-Term Investment

However, a deeper analysis shows that there’s still a huge demand of coal and coal stocks remain a sound investment option for long-term investors.

According to the International Energy Agency, global demand for coal is set to jump up by 2.6% in 2022 after a drop led by the COVID-19 pandemic. The recovering economic activity is expected to increase the demand for electricity and industrial output, and many developing countries will turn to coal to meet their energy needs. Global coal production is expected to grow at a compound annual growth rate (CAGR) of 2.3% between 2021 and 2025 to reach 8.8 billion in 2025.

The best coal companies are on track to take advantage of this growing demand:

Warrior Met Coal, Inc. (NYSE: HCC)
CONSOL Energy Inc. (NYSE: CEIX)
Alpha Metallurgical Resources, Inc. (NYSE: AMR)
BHP Group (NYSE: BHP)
Ramaco Resources, Inc. (NASDAQ: METC)
NACCO Industries, Inc. (NYSE: NC)
Peabody Energy Corporation (NYSE: BTU)
SunCoke Energy, Inc. (NYSE: SXC)
Arch Resources, Inc. (NYSE: ARCH)
Alliance Resource Partners, L.P. (NASDAQ: ARLP)