Thermal Coal Play

First, a commodity snapshot from Bespoke.  Clearly, commodities were the big losers in the first half of this year:  Iacono Research.  As fallout from the natural gas bust, coal stocks were the worst, being down more than an average of 70% from 52 week highs and 79% from all-time peaks (chart in article).

The coal stocks have been leading the risk-on rip which began last Friday:  24/7 Wall Street.  Yes Virginia, Europe Burns Coal Fastest Since 2006 in Boost for U.S. at Bloomberg.

Yet, striking is how dinky the Western nation coal imports are next to the developing world.  The Sun  I know everyone is freaking out because China has a month of coal inventories laying around.  Financial Times  But India can hardly keep the lights on:  WSJ and WSJ blog.  The emerging nations, chief of whom is China, are what matter:  Weakonomics.

Here at ISA we’ve have been increasingly noting the coal sector with posts like Down & Dirty with Coal and China and Coal.  All posts with even a mention of coal can be found here.

Stocks tend to be leading indicators.  Fitch: Coal price recovery on horizon, but weakness could persist into 2013 at SNL.  Jeff Saut from his missive Monday:  “In my opinion, last week the Commodity Index bottomed and the Dollar Index topped.”  Raymond James

Notes from Peabody’s analyst day at Doyle Trading Consultants.

As for specific stocks, the lowest cost and least beat up industry participants are royalty play NRP and low cost producer ARLP, both of whom sport big yields.  BTU is the industry big boy.  On the other end of the spectrum are high beta PCX and JRCC, who while they may continue rocketing higher, are bankruptcy candidates longer term.  Arch Coal (ACI) stock may be in the best risk and reward option.  Arch does not have the dire debt and legacy issues of the spec plays, but being severely beat up itself offers the possibility of much greater reward than the safer guys.

Arch Coal’s recent presentation can be had by opening the file on their website.  The first half discusses the coal market, the second half Arch specifically:  Arch Coal.

Arch Coal chartology at See It Market.  As always, good stocks are hard to buy.

When I started this blog eleven weeks ago I had no idea I’d been taking such an interest in the coal sector.  To end, I’ll quote one wise man:  “We all bet our own money and take our own chances.”