What do you get when you combine Australian floods, Chinese snowstorms and an insatiable demand for steel in Brazil, India and other developing countries?
If you're Walter Industries, a Tampa company that produces a type of coal used to make steel, you get the highest stock price in company history. Walter's stock rose 2 percent Monday to close at an all-time high of $44.77 per share, capping a steady climb that has lifted its shares 25 percent in 2008 and 67 percent since Sept. 30.
Recent bouts of bad weather around the globe are partly responsible. In Australia, the world's No. 1 exporter of metallurgical coal, heavy rains have flooded mines and caused production delays. China has temporarily curtailed its coal exports because of paralyzing snowstorms. The resulting shortfall has had a positive impact both on coal and stock prices alike.
Long-term trends also favor higher prices. In fast-growing countries like China and India, the drive to build infrastructure - stoked by the increasingly globalized economy - has created a staggering demand for materials such as steel and, by necessity, coal. Metallurgical coal is used to produce metallurgical coke, which in turn is used in blast furnaces to turn iron into steel.
All of this works in the favor of producers like Walter Industries, which sold 5.5-million tons of metallurgical coal in 2006 and derives 80 percent to 90 percent of its operating income from that business line.
The company's annual contracts with most of its European and South American customers expire March 31 and June 30, respectively, and must be renegotiated. "This obviously is going to factor into negotiations," chief financial officer Joe Troy said Monday.
Close followers of Walter Industries' stock may recall that it closed as high as $70 in early 2006. But that was before the company spun off its Mueller Water subsidiary - a maker of iron pipe used by municipalities - into a separate stock. After adjusting for Mueller's absence and prior Walter dividend payments, Monday's closing price was the highest ever.
Scott Barancik can be reached at email@example.com or (727) 893-8751.
What was once cold gets hot
In 1999, Walter Industries said it was putting its coal business up for sale as a money-losing unit of the company. The sale never happened and, lately, Walter has derived the vast majority of its operating business from coal.