Coal Tell

Today brought coal stock upgrades and a 6% rally in natural gas, yet the coal stocks are weak after Friday’s barn buster rally.  While pondering the action, let’s consider more fundamentals:

Most important for coal is natural gas.  Coal needs natural gas production to decline.  Shale production continues to surge, with the Marcellus more than double year over year (Bloomberg).  New well productivity continues to impress (Haynesville Play).  The gassers are not making money as “Shale writedowns begin” at Financial Post.

The highly publicized April, 2012, event of natural gas out pacing coal for electricity generation was an aberration (John Hanger).  Yet natural gas displacing coal is the secular trend; see this chart for coal plant retirements:  EIADuke’s Progress unit to speed coal plant retirement, shut another at Platts.

“We may not like coal, but given the insatiable demand for electricity, it will be powering the global economy for decades to come.”  LA Times

“India resumed power supplies to most of the 360 million people plunged into darkness by the worst grid failure in a decade.” at Bloomberg.  For perspective, 360 million people is more than the US and Canada combined.  They need massive infrasture investment and they need coal.

However, in the short term “Indonesian thermal coal prices remained under pressure on Monday” at Platts.

Peter Epstein:  “Alliance Resource Partners Kills It”.  Also, What Does Friday’s Surge For Arch Coal and Alpha Natural Resources Tell Us by Peter Epstein.

Coal For Christmas and A Sweet Squeeze by UpsideTrader.

Update:  The coal stocks had a mid-day reversal.