What Peabody Energy's filing for bankruptcy says for the future of coal?

The unprecedented comeback from world currencies and in particular emerging markets against the rampant strength of the US Dollar since the beginning of the year has laid the foundation for one of the biggest commodities price rallies since the end of the Financial Crisis. Together with a slight uptick in demand coming out of China, commodity prices have moved powerfully ahead to gain back lost ground after last years dismal performance.

But it's not with fading concern as the problematic debt crisis most producers find themselves in remains the bedrock of uncertainty amongst producers. We witnessed mining conglomerate Glencore becoming the bearer of bad news (or rather doomsday prophets) when they presented to shareholders a restructuring plan to cut down debt from abnormally high levels due to an inability to pay it back when considering the outlook of the mining sector.

This was followed by Anglo American Plc, BHP Billiton, Rio Tinto and the likes all conceding to the output glut they had created in expecting resilient demand to stem from China that had fallen flat after a hard economic landing that still persists.

Although these bigger mining players may have weathered the storm at the height of its compounding panic, it was only a matter of time before we saw casualties submit to the often cruel aftermath of such an event. Yesterday's announcement that the world's biggest private coal producer, Peabody Energy Corp. had filed for voluntary bankruptcy drew a gasp of shock yet an expectant understanding that the inevitable that had been priced into most commodity producers had finally marked its presence in the sector.

Filing for voluntary bankruptcy, Peabody Energy might be able to preserve a company that's been in existence since 1883 but will need to re-think their pathway going forward as a result of an increasing competitive coal producing environment resulting in lower margins as well as a shift away from dirty energy to cleaner fuels.    

BREAKING: Peabody, world's largest privately owned #coal producer, files for bankruptcy! https://t.co/mC9ccCDGQh pic.twitter.com/UvxaTIxXJn

— Greenpeace (@Greenpeace) April 13, 2016

Most major commodities have experienced the same fate but coal has had the toughest out of all of them given the dual purposes it has in the production of other key products namely electricity and steel output. Both of these products are vital in providing a stable and concrete economy to grow from but an aspect that's been missing from the largest consuming nations of these products.

The US under the Obama administration has gone on a tireless drive to make the public aware of the harmful effects pollution has on the environment and in doing so has tightened the regulations for coal producers by implementing policy that require them to emit less emissions and providing tax breaks for suppliers of cleaner energy.

In China the demand for steel has dropped dramatically as government attempts to transition the economy from production oriented to consumer driven. This has had a profound impact on the price of metallurgical coal which is used in producing steel, another area of the sector that's been confronted with overcapacity and a gluttony of supply.

It's important to note that Peabody Energy had invested $5.1 billion into an Australian metallurgical coal mining company that's spelled the beginning of their disastrous performance following the declines in prices.  The company has indebted itself at a time when most in the industry had expected more on offer but got a lemon instead, however had the company been more diversified in its products perhaps it would've stood a better chance of survival as has been the case with the larger miners.

The company is a distinct player in the global coal production equation which begs the question over what the state of play might be for the commodity in the future. If the largest privately owned producer of coal is unable to steer things in the right direction, who has a chance to?

Indeed the price has a huge impact on profitability but the regulatory environment isn't going to fade away too quickly, especially after this event which would be considered a victory in the quest for cleaner energy. Government's around the world are increasing the momentum behind a global effort to curb carbon emission adding to the woes of these producers and making it harder for them to cream the profits that once were able to in the past.

Possible scenarios may take shape in the months ahead but I expect these bigger players to be swallowed up by the diversified producers whilst the smaller producers trickling out the market. What the industry needs now is a reinvention of itself with specific focus on other forms of energy besides coal. The future for energy lies in the way that consumes the least from non-renewable resources and aims at stretching the output of those renewables such as solar and wind to its fullest potential.