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It's Not Too Late to Buy Coal

by: Jeffrey Lin June 06, 2008 | about stocks: ACI / BTU / JOYG / PCX    

Jeffrey Lin

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While crude oil prices has been spasming (trying to find a direction) the last few days after hitting an all time high last week, coal continues to march ahead.  globalCOAL’s NEWC weekly index reports coal trading at $138.35/tonne for the week of May 23 versus $134.85 the week before.  The record high was $139.16 back on February 15th.

Problems on both the supply and demand sides continue to support higher coal prices:

  1. China continues to be forced to close power plants due to shortage of coal.  Current coal supplies will only last for 3.1 days of power generation which is much lower than the 7 day minimum supply usually needed.
  2. Export train from Colombia’s Cerrejon mine was derailed on its way to Puerto Bolivar due to terrorist attacks.
  3. Bottlenecks at Australia’s Newcastle port has caused coal exports to decline by 18%.  Furthermore, queue of coal ships waiting to carry the coal has increased, tying up coal ships for 13.5 days while waiting to load coal versus the 0.38 days average loading time for general cargo ships.

More Coal news at globalCOAL

These supply and demand problems should continue to act as a driver for coal and all of coal’s supporting infrastructure.  Even as coal stocks are at or near all-time highs, coal miners like Arch Coal (ACI), Patriot Coal (PCX), and Peabody Energy (BTU) can still be bought on dips.  Likewise, methods of transporting coal such as the rails, barges like Kirby (KEX), and dry shippers should still have momentum.  Finally, coal mining equipment makers Joy Global (JOYG) and Bucyrus (BUCY) has products that are in high demand to continue to open new mines and bring out coal.

No need to chase these. This is just to highlight how real the problems with coal and power generation is.  The bottlenecks at ports like Newcastle won’t be fixed overnight, or even over a year, as whole port cities might need to be constructed and railways built in order to get all the coal out.  In China, even with the earthquake temporarily knocking out several provinces and thus their energy use, China is still 4 days short of coal. For a country that big, it will take a lot of coal just to bring coal supplies back to that 7 day minimum (not even a slight surplus for rainy days).  Meanwhile, summer is approaching and U.S. utilities will be fighting the foreign buyers as U.S. utilities try to keep their requirements of coal from being exported.

**Disclosure: I own shares of PCX and BUCY as of this post**

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This article has 16 comments:

  •  
    Jun 06 08:28 AM
    outstanding stuff! rock on pcx
    Reply
  •  
    Jun 06 10:28 AM
    So far, I've missed the coal play. Shame on me! I like the supporting players and will buy JOYG off its recent pullback. Nice article!
    Reply
  •  
    Jun 06 11:01 AM
    Someone please tell me why PCX is outpacing MEE, CNX, even ANR? PCX has bad valuations compared to those three, although it has a decent FORWARD PE of around 18. Gap-Ups seem to be a way of life.
    Reply
  •  
    Jun 06 01:29 PM
    If you'd said buy 4 months ago before they tripled that'd been a good call.
    But now?
    More likely a regression to the mean at these prices.
    Reply
  •  
    Jun 06 05:49 PM
    energy is where it is at; and that includes coal.

    I've been lucky having brought in on the coal few years ago with fdg.un on Toronto exchange; nice cash yield and it has doubled since beginning of the year

    I think one has to buy energy on the dips....
    Reply
  •  
    Jun 07 04:52 AM
    Instead of trying to select different stocks, I would strongly suggest the ETF KOL. It has a broad variety of holdings. The diversification in this area is important.
    Reply
  •  
    Jun 07 04:55 AM
    Instwead of struggling to select indicdual coal stocks or related wequities, I would strongly suggest the ETF KOL. This holding gives excellent diversification and has somewhat less volitility than some of the stocks in this area.
    Reply
  •  
    Jun 08 06:10 AM
    Why fool around with paltry 100% gains when you can go for 1000%+ ?

    Recently GoldSource Mines Inc. (Public, CVE:GXS) stumbled upon coal while drilling for kimberlite in Saskatchewan, Canada. The drill holes were 1.6 Km apart and it appears that the speculators are betting on that the two coal seams are contiguous judging by the stock price performance. GXS was trading around the 20cents range earlier in 2008 and when they hit pay dirt approximately 6 weeks ago, the stock took off like a rocket. It is now trading at $8.99 for a 45X gain or 4500% increase.

    The same performance is looking like a possibilty for Cash Minerals (Toronto - CHX)

    GoldSource Mines INc -
    finance.google.com/fin...

    CASH MINERALS -
    finance.google.com/fin...
    Reply
  •  
    Jun 08 06:18 AM
    Sorry I should have added that the massive volume spike in the stocks traded in CASH MINERALS on Friday ie 7 million, is pointing to a possible HUGE run in this stock over the next 2 months.

    Cash Minerals is sitting on 52million tons of high grade bituminous coal. There are 110million shares outstanding and the stock closed at 27cents on Friday 6 June 2008.
    Reply
  •  
    Jun 08 10:40 AM
    Difficult to say why PCX is outpacing MEE, CNX and ANR, but our readers have already made 45.27% in just 14 trading days. Check our website for more info.
    Reply
  •  
    Jun 10 05:05 PM
    Something is odd about the move in PCX. Could be a huge short-squeeze.

    But, be careful here. On May 28, it sold $200 million worth of convertibles with a conversion price of $135.34 and the stock was at $96.67 the previous day. At some point, those buyers of converts will lock in their profit by shorting the common. Plus, PCX will be issuing more shares soon to use in its acquisition of Magnum. The sellers of Magnum will want to lock in their profit by shorting the common of PCX even before the deal closes.

    Maybe, others can add more to this.
    Reply
  •  
    Jun 17 08:42 AM
    Buying coal stocks now, just after a parabolic run-up, is a recipe for disaster if you have a time horizon longer than a few weeks or months.
    Reply
  •  
    Jun 19 02:11 AM
    The run has been huge and a pullback will come but here's a tidy recipe...

    By some with GTC stops. If the trend reverses the losses are calculated and minimal. If the trend continues move up the stops...
    Reply
  •  
    Jun 30 12:17 PM
    Here's another article on coal, including BTU and CNX. BTU has done better than all the other stocks in this sector.
    Also, a warning that coal name could vulnerable to a sudden sell-off.
    Here's the link: www.greenfaucet.com/tr...

    Check it out if you're interested in coal, natural gas producers, or natural gas services
    Reply
  •  
    Jul 16 01:11 PM
    Strength in coal confirmed with Cleveland Cliff's acquisition of Alpha Natural Resources: Cleveland-Cliffs to buy Alpha Natural for $8.4 bln
    Keep tabs on the coal industry with this SuckingLess resource
    Reply
  •  
    Jul 16 01:11 PM
    suckingless.com/2008/0.../
    Reply
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