Walter Energy Inc. and other U.S. producers of metallurgical coal slumped after Bank of America Corp. said supply and demand fundamentals for the commodity will be “depressed” for the next several years.
Walter dropped 20 percent to $7.27 at the close in New York, the biggest decline since August 2011. Arch Coal Inc. slid as much as 4.4 percent and Alpha Natural Resources Inc. as much as 5.8 percent.
Benchmark contract prices for metallurgical coal, which is used to make steel, are at $143 a ton in the first quarter, the lowest since 2010. Quarterly prices will be in a range of $130 to $150 a ton in the next several years, Timna Tanners, a New York-based analyst at Bank of America, said today in a note.
Tanners cited excess supply, the falling marginal cost of production, the use of substitute raw materials, and the resistance of mining companies to making production cuts.
Walter “could face a mounting liquidity problem” over the next one to two years, she said. “High-cost U.S. met coal producers are especially vulnerable to price and volume.”
Mark Tubb, a spokesman for Birmingham, Alabama-based Walter, didn’t immediately respond to a request for comment.
Tanners cut her target price for Walter to $2 from $8. She also reduced her target for Arch to $2.50 from $3; Alpha to $3 from $4; and Peabody Energy Corp. to $18 from $19. She has a sell rating on Walter, Arch and Alpha and a hold recommendation on Peabody.