Coal Baggers? Maybe

Our interest in coal was born in the depressed state of the industry. These stocks are not for the faint of heart.  In this particular trade the speculator is looking for doubles and multi-baggers.  As in Five most shocking stocks that have doubled in the last year (Marketwatch).  JRCC (chart) is knocking on $3, almost a double in the last month.  But how many bought at $5, $6 or $9 looking for the same thing?

First things first:  Is natural gas going to recover?  If not, run from the coal sector.   No Spike in Natural Gas Looming: Boone Pickens at CNBC.  T Boone doesn’t know and neither does anyone else.  So ISA will wait to see if supply falls.

From this mornings oil and gas post:  Not exactly the stuff of an imminent production decline:  “Natural gas production from Pennsylvania’s Marcellus Shale for the first half of this year jumped 82% over the same period last year (Platts)”.  Exxon Mobil’s natural gas production has barely rolled over and too high of a decline rate (for XOM’s mature production) is estimated for a prediction of their production to fall meaningfully.  SA

But if natural gas prices rise meaningfully, coal would have a huge up cycle.  The industry is very capital constrained.  Most importantly, production cuts have been real and large.  Some industry scuttlebutt:  Doyle Trading Consultants.

Picking the winners will be harder than it looks.  Alpha Natural is an internet speculator favorite because of their coking coal.  Yet Alpha’s high cost coking coal scares me when I see “The expansions underway will boost BHP’s production volumes…including a 50 percent increase in coking coal output, Kloppers said.”  Reuters

2 thoughts on “Coal Baggers? Maybe

  1. Mr Butler, could the export market’s bring relief despite low NG prices ? What are the implication of LNG, if an international market would be developed ?

  2. Hans,
    US coal exports are a small but expanding portion of the coal market. Coal exports are not meaningful enough to provide relief from NG displacement.

    Coal exports are a possible nice partial offset to the long term US coal plant retirement story.

    US LNG exports would alter the dynamics in positive way. However, being many years away it is not relevant to the current situation.
    ~JJ Butler

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