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Wilbur Ross Says U.S. Coal Is Facing Years of Headwinds

July 16, 2012 | About:
Dheeraj Grover

Dheeraj Grover

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Billionaire Wilbur Ross, who built a company from distressed U.S. coal assets and sold it last year for $3.4 billion, says the industry’s current slump differs from earlier setbacks and may last for years because of the shale-gas boom.

A combination of cheaper natural gas, environmental regulations and a mild winter has spurred the closure of mines and the loss of thousands of mining jobs in the U.S. Domestic demand is at a 24-year low and the fuel has lost its status as the leading source of electricity, with gas accounting for the same share for the first time in at least four decades.

Ross, 74, started International Coal Group Inc. after buying Horizon Natural Resources Co., a mining company that went bankrupt 10 years ago amid a recession. While St. Louis-based Patriot Coal Corp. (PCXCQ) filed for bankruptcy protection last week, he doesn’t see any immediate buying opportunities.

“Last time the cycle was this bad, the problems were essentially just cyclical,” Ross said in a July 10 e-mailed response to questions. “This time the major secular trends are far more likely to be unfavorable for years to come.”

Ross says the biggest pressure on the U.S. coal is gas, the supply of which has risen along with the increase in hydraulic fracturing of shale rock. Output will climb 4.2 percent to a daily average of 69 billion cubic feet this year on higher production from deposits such as the Marcellus shale in the Eastern U.S., according to the Energy Department’s July 10 Short-Term Energy outlook.

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About the author:

Dheeraj Grover
I am an individual investor with deep interest in the field of value investing. My ideas and thinking is inspired by highly respected value investors like Ben Graham, Warren Buffett, Walter Schloss, Bill Ruane and Tweedy Browne

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