Investing in Coal Stocks
Investing in Coal Stocks: Strike It Rich With the Other Black Gold
A Taipan Publishing Group Strategy Report
by Irwin Greenstein, Senior Research Analyst, Taipan Publishing Group
It is the largest single source of fuel for the production of electricity worldwide. Demand for it this year could easily shatter the previous record set in 2006.
And for the three months ending February 22, 2008 we’ve seen stock prices for producers of this other black gold skyrocket 212.1%, 82.9% and 58.3%.
The other black gold we’re talking about is coal. Based on the most recent projections, anyone who gets in on coal today could still stand to make a sizeable chunk of money.
The bellwether for coal, the Dow Jones U.S. Coal Index, is on its way to doubling as we approach March 2008. With no pullback in prices expected near term, the rest of this year could easily make coal the must-have investment for your portfolio.
Superhuman efforts by U.S. coal producers in 2008 will excavate a bounty that could approach the record set in 2006, the National Mining Association (NMA) reported on January 23, 2008. NMA also forecast record demand in 2008 for America's coal reserves, the world's largest:
Our forecast reflects the powerful underlying conditions that are continuing to drive up coal and mineral demand," said NMA President and CEO Kraig R. Naasz, in his prepared remarks. "The abundance of these commodities in the United States makes them especially valuable in a global economy driven by strong growth in large, rapidly developing countries.
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Investing in Coal Stocks: New Coal Power Plants Fire Up at a Blistering Pace
The 1.16 billion tons of production NMA forecasts for 2008 tops the 1.147 billion tons mined in 2007, and is just 2 million tons shy of the 2006 production record.
There is just no way around coal when it comes to keeping the lights on. Despite its environmental black eye, coal comes out slugging on behalf of investors.
Last year, the U.S. had more coal-based power plant capacity than in any year in this decade, according to the NMA. In addition, another 24 coal-based plants are under construction.
Bottom line: New coal-fired electric plants under construction in the U.S. should add 50 million tons of demand per year, or approximately a 5% increase above current demand, according to portfolio managers at U.S. Global Investors.
The boom in coal is not limited to the U.S. -- by any stretch.
Investing in Coal Stocks: China Becomes Coal Importer
In the first half of 2007, China broke down for the first time and imported more coal than it exported.
The National Australia Bank expects Beijing to start becoming a net importer of 15 million tons of coal. And that shortfall could increase dramatically to 95 million tons unless China makes drastic changes to its energy policy, reported the International Energy Agency.
The crisis hit especially hard in late January when the worst blizzards in 50 years and power outages led Beijing to suspend coal exports for the first calendar quarter of 2008.
In the aftermath of the suspension, Asian prices for coal soared 34%. The fallout also caused coal benchmarks to hit all-time highs in the U.S., Europe and Asia.
China cannot rest. It’s going all-out to mine as much coal as possible. Even though it doubled output from 2001 to 2006 -- China’s massive coal industry cannot satisfy demand.
In part, that’s because in 2005 the China started shuttering thousands of unsafe and inefficient coal mines responsible for widespread fatalities. By early January 2008, the government said it had closed 10,412 coal mines and still planned to close 1,100 more.
Investing in Coal Stocks: Beijing Is Bullish on Coal
At the same time, China is adding hundreds of new coal-fired power plants -- enough to power all of Australia. According to the China Electricity Council, China's power-generating capacity rose by 18% just from last July to December, most of it fueled by coal.
It remains unclear how long China’s coal reserves can continue to fill the country’s ravenous demand for cheap electricity, giving impetus to higher prices. But early reports indicate a dire situation.
Investing in Coal Stocks: Capitalize on China’s Coal Addiction
China’s surging demand for coal comes at perhaps the worst possible time for the bureaucrats in Beijing.
Flooding at important mines in Australia has crimped China’s supply line. And the coal that can be mined sits in Australia’s ports choked with cargo vessels waiting in line to get their cargo of coal.
Logistical nightmares also haunt Russia, where rail-car shortages subvert attempts to get the country’s abundant coal output into the world market.
Investing in Coal Stocks: The Europe-South Africa Coal Connection
In Japan, an earthquake disabled one of its nuclear power plants last year, forcing the government to import perhaps more coal than ever before… through a supply chain on the brink of collapse.
The power shortages and blackouts in South Africa’s coal regions have hampered exports to Europe. Conventional wisdom says that Europe’s coal consumption fell between the late 1980s and early 1990s as coal-fired power plants were replaced with natural gas and green alternatives, such as wind and solar.
But that’s simply not the case. Since the late 1990s, Europe’s coal consumption has been increasing incrementally. While Europe’s coal consumption is not the drain on the market that China is, Europe is still using plenty of coal.
Still, the demand for coal is perhaps highest in developing countries.
Investing in Coal Stocks: India Goes Crazy for Coal
India is following in China’s footsteps with a national infrastructure buildout that is driving up the country’s coal imports -- despite a large domestic reserve of coal. India plans to bring on 40-50 GW of coal capacity could result in additional imports of about 80 million metric tons of coal per year.
As a result of India’s ramp up, JP Morgan forecast that contract prices between Australian miners and Japanese utilities would jump by over 60% as a direct result of Indian coal demand.
"We believe it is the growing demand for imported coal into India that could have the greatest impact on the industry," JP Morgan's commodities analyst David George said in a research report issued on Tuesday.
Investing in Coal Stocks: Emerging Economies Want More Coal
Elsewhere in the developing world, countries such as Indonesia are also feeling the pinch of India’s growing consumption. Indonesia is hoarding coal stores for domestic consumption, turning yet one more exporter into a net user of its own reserves.
Overall, the relatively cheap price of coal makes it highly desirable in emerging economies, such as Brazil and Vietnam, in addition to the stalwarts, like China and India.
This means that the insatiable demand for coal could easily push prices higher through 2009 and beyond.
Investing in Coal Stocks: Big Winners in Coal
The insanity ruling the coal market today is making many investors wealthy beyond their imaginations. In the three months ending February 24, 2008, some coal products saw incredible leaps in their stock prices…
How to collect $25,000 to $375,00 every year for the rest of your life! |
- JRCC James River Coal Co up 212.13%
- NCOC National Coal Corp up 82.93%
- FDG Fording Canadian Coal Trust up 58.30%
- ANR Alpha Natural Resources up 56.22%
- PCX Patriot Coal Corp. up 52.42%
- ACI Arch Coal, Inc up 47.51%
- SSGDF Straits Asia Resources, Ltd up 42.50%
- ICO International Coal Group, Inc. up 38.15%
- CNX Consol Energy, Inc. up 37.74%
- FCL Foundation Coal Holdings, Inc. up 28.58%
While many of these companies are listed on exchanges outside the U.S., investors can trade them in the U.S. through various American exchanges. (The best way to discover which U.S. exchanges these stocks trade on is to visit your favorite financial Web site and enter the ticker symbol.)
Investing in Coal Stocks: Going Long on Coal
Remember, the worldwide demand for coal is expected to persist. We’re seeing coal prices at towering levels… and rising. Everywhere we look, coal inventories are low.
These market fundamentals lead to expectations that coal prices will be higher moving forward. If you are interested in a long-term and reliable energy play, take a serious look at the other black gold. For more on stocks that are generating huge gains for investors check out the Taipan newsletter.
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Originally published February 29, 2008.
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Copyright 2007-2008, The Taipan Publishing Group, Taipan Daily and Chart of the Day, 808 St. Paul St., Baltimore, MD 21202. All rights reserved. No part of this report may be reproduced or placed on any electronic medium without written permission from the publisher. Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed.