Coal Commentary

A sustained rise in natural gas is required for the coal sector to rebound.  Perversely, Natural gas futures tumble 4% after U.S. supply data this morning (FP) is healthy.  A strong cyclical US coal upswing needs natural gas production to fall meaningfully.  The end of this Benteck presentation is none to cheery for natural gas pricing.  Independent Stock Analysis continues to expect the fall natural gas shoulder season to provide opportunity.

The potential rebound in the US thermal coal markets would be a strong cyclical rise.  Consider:

  • The evolution of the U.S. power sector, in one chart at Washington Post.
  • Coal fired plant retirements (EIA)
  • “American’s demand for electricity will grow at a sluggish pace over the next two decades, as economic fallout from the Great Recession takes a toll on the nation’s power industry” at Fuel Fix.

Yet the world coal industry is becoming more integrated.  Though currently in its own slowdown, the super-cycle is ginormous:

“Every modern, industrial society in history has gone through a 20-year period “where there was extremely large investment in the power sector, and electricity made the transition from a privilege of an urban elite to something every family would have,” Varro said. “India is right now just at that jump point…India will have to build roughly as much power generation in the next 25 years as the U.S. has today” at Washington Post.

“Coal is making an unexpected comeback in Europe this year” (Petroleum Economist).  But don’t get to excited, as EUROPE COAL: Spot market trades stable on comfortable supply at Platts.

I continue to giggle over candidates Obama and Romney trying to win the hearts of coal country:  Bloomberg and Gateway.

ISA expects to have continuing coal market commentary (coal and home pages).  Many individual names still must be examined, with the strong expected to take from the weak.  Several actively traded names are serious bankruptcy candidates.  Coking coal does not look to bail out certian coal names as many expect.  The rails still need to be examined as derivative plays.

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