As China Burns Coal, Which Stocks Benefit?

China, which gobbles up commodities, keeps the lights on with coal.

China�s consumption of steam coal amounts to 22% of world steam coal production, and monthly coal imports were near records in November, at 9.7 million metric tons, according to Matt Badiali, editor of the S&A Resource Report, in a piece out today.

Miners BHP Billiton (BHP) and Rio Tinto (RIO) produce coal in Australia that can be easily shipped to Asia, and the trends could bode well. But these mining giants pull plenty of other commodities out of the ground and global miners� shares have outperformed U.S. coal producers.

Shares of BHP are up 2.5% over the past 12 months though Tuesday�s close, while shares of Rio Tinto are up 3.2% over the past year. BHP pays a 3% yield and Rio Tinto, 2.6%.

Not all U.S. coal suppliers have the right kind of coal, or the ability, to ship to China. Peabody Energy (BTU), the largest U.S. coal producer as measured by sales, may not be getting credit for its expansion into Australia, where it now operates in eight mines. Peabody stock is down 31% in the past 12 months through Tuesday, albeit a better performance than two of its U.S. coal peers. But Peabody shares are trading with a steep valuation, �and analysts are projecting a big drop in Peabody earnings in 2013.

The worst-performing U.S. coal producers were�Alpha Natural Resources�(ANR), the second-largest U.S. coal company, and�Arch Coal (ACI). Shares declined 54% and 51% respectively.

U.S. coal producers� shares have been decimated due to lower coal prices. That has resulted from the oversupply of �natural gas, and the drop in natural gas prices to rock bottom in 2012. �There’s a relationship because some industrial consumers and power producers can switch from coal to gas when the price is right, and coal exports don’t fill the gap.

The coal producer with the best 2013 earnings growth profile is Consol Energy (CNX), whose stock is down 11% over 12 months. It produces coal and natural gas, expects production to increase between 8% and 15% this year, and plans to invest more in natural gas operations than in coal in the months ahead. �Consol�s notable joint-venture drilling projects are in the Marcellus Shale with Noble Energy (NBL), and in the Utica Shale with Hess (HES).

To help finance this refocus away from coal, Consol sold assets valued at $350 million in 2012, and�said Monday it expects 2013 asset sales�to total between $127 million and $312 million in 2013.

If you subscribe to the theory that you want to buy cyclical names when their PE/s are high — with earnings out of syc with prices –beware the earnings projections. Consol’s multiple is 26 times estimated 2013 earnings and��Peabody is trading at 32 times. �Analysts expect Arch and Alpha to produce higher losses per share in 2013, a drop in Peabody earnings of 61%, and a 29% rise at Consol.

For more, check out�Matt Badiali, editor of the S&A Resource Report, in �The Next Big Commodity Boom,� �published on the�Growth Stock Wire�and Tweeted about by�Stansberry Research.