For the third straight day the coal names have rallied. Interestingly, only those with a position would have noticed. Share owners have had relief and shorts have been squeezed hard. I continue to wait on coal.
The rally from deeply oversold levels was sparked by China approving infrastructure projects. Many bulls have been clinging to coking coal. Further signs of stimulus plans from a slowing China at Mining. The End of the China Steel Trade by Peter Pham. Chinese Seen Importing Less Coal From Australia by DNB Markets at Bloomberg.
US miner Consol sees steelmaking coal prices up in 2013 at Mining Weekly. I listened to the same presentation and my notes differ: ‘He indicated the next year should have a shake out of the marginal met coal producers. The thermal coal market seemed to reach a place where the bargaining table is even.’
Also from CONSOL’s CEO: Expect a coal resurgence at the end of this decade and US coking coal producers are in currently in trouble. SNL.
ISA‘s interest in coal is for a potential thermal coal rebound, dependent upon natural gas supply declining. Consider Southwestern Energy (SWN) having big Marcellus plans (and a chart which rivals AAPL) from Richard Zeits:
“a year and a half ago, Southwestern had zero production coming out of the Marcellus. At the end of last quarter, SWN had 166 MMcf/d of gross operated production from the area which the company expects to increase to over 300 MMcf/d already by the end of this year and to over 500 MMcf/d by the end of 2013. By 2017, SWN anticipates to be producing almost 800 MMcf/d out of the Marcellus.”
This natural gas growth and management saying “wells “work” in a sub-$3 natural gas price environment” makes calling for a natural gas production to decline difficult. Natural gas at $3.50 mobilizes BHP (forex). Looking forward, however, last week the rig count moved in the bulls direction (Haynesville Play).
Natural gas demand at power plants (EIA) has displaced about 100 million tones of coal production, most of which will not be returning to production. If and when natural gas production falls coal could return robustly.
Meanwhile, 32% of 2011 wind capacity installed in the U.S. was wind. Click on the thumbnail. “The wind industry is setting wind production records virtually every month, and wind power increased 16% from January to June 2012.” John Hanger
Many coal investors continue to gamble on a strong rebound in the weak company’s. If beta and leverage are your game, consider calls on the strong players instead. My essay.
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