If the chart is any indication - and it usually is - then the James River Coal Company (NASDAQ:JRCC) may be headed for even rougher waters. 2011 was nothing short if miserable for the industry, and for JRCC in particular, as domestic demand for coal dried up and prices plunged.
The chart says it all. JRCC has been pressured lower all of this year (and the latter part of last year) by resistance at several of its falling moving averages. Indeed, it's knocking on the door of new multi-year lows again. That in itself is a cue for a lot of traders to steer clear. Thing is, there's a reason to doubt any rebound in business for James River Coal Company at any point in the foreseeable future - new carbon emission limits are going to make it even tougher to be a U.S. coal supplier.
It's an undertow the company just doesn't need to face right now. Though revenue has actually been higher than the recent average in the past three quarters, James River Coal Company has actually sung to a loss in the meantime, dipping deeper into the red ink last quarter as prices have fallen versus rising costs and expenses.
All told, JRCC drew in $357 million in sales in Q4 of last year, yet lost $28.5 million - the biggest loss in a long, long time - as thermal coal prices fell from $75 per short tonne at the end of Q3 to $60 at the end of Q4. Coking coal roughly followed that same price trend. And, in the case of both thermal and metallurgical coal, prices have continued to slide in the meantime. Translation: Q1's numbers could be even more painful than Q4's.
But what about the imminent recovery in coal? Not just price, but also demand? It's not unreasonable to expect the pendulum to swing the other direction, especially now that natural gas prices are low to the point where drillers don't even want to tap-in anymore.... there's no profit in it. Simultaneously, though politically unpopular, domestic demand for coal is stabilizing, and Chi! na's dem and for coal is still on the rise despite fears of a slowdown.
The contrarian arguments actually make pretty good since, which supports a rebound from James River Coal Company shares. There's a problem with the premise though. While natural gas played may well cut production, they're not apt to cut production (and raise gas prices) to the point where coal is the better choice again. Likewise, even a moderate degree of demand-resurgence for coal - particularly in the United States - isn't going to push price levels and consumption back to profitable levels.
No, it's likely to take something of a paradigm shift in the consumption of gas and coal to get JRCC firing on ally cylinders again.... a catalyst that isn't on the horizon. That's what the market is thinking anyway, as evidenced by this stock's chart.� 
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