Coal shares down on lower steel coal price talk at Reuters. ISA readers already know coking coal is not the play right now. “Coal used to make steel is set to drop to the lowest price in two years” at Bloomberg. Walter Energy Shares Surge on Takeover Rumors are back (Benzinga) and I am not interested.
The coal super-cycle is not the play just yet either. “Top coal producer and consumer China cut coal output targets at the top three producing regions by as much as 7% from a year ago to ease a supply glut caused by a slowdown in economic growth, which has also weakened global prices.” Mining Weekly. However, for China to industrialize they will need to continually import prodigious amounts of coal (Reuters).
Instead, yesterday’s coal share weakness was a function of natural gas being lower. The natural gas contango is bearish (HAI) too, counter intuitive to those new to commodity markets.
The crux of ISA‘s patience in waiting to be involved with the coal stocks: “Although the number of active drilling rigs has dropped sharply this year in response to falling dry-gas prices, production has continued to grow because of gas supply associated with more lucrative oil and liquids development, and because existing gas wells have not depleted as quickly as expected…” AOL.
Further cause for patience: “Announced production cuts in the U.S. through June of about 60 million tons is not nearly enough to balance supply and demand for thermal coal. Additional cuts will certainly be coming.” Peter Epstein
They may hate coal, but they do need it (Manhattan). Remember though, we are looking to play a US thermal coal cycle as US coal plants are old (EIA). The misleading title The US has now installed enough wind turbines to power all California’s homes is still impressive knowing US residential electricity generation market share is 35%. Mining. Whether that is nameplate or actual generation I do not know…
Coal earnings season takeaways: Doyle Trading.
NRP will be an Independent Stock Analysis favorite conservative and income coal play. But shares look to trade with an overhang as Coal operator Chris Cline seeks to unload big stake in Natural Resource Partners at SNL.
Coal readers are encouraged to visit the Independent Stock Analysis home page.