Coal. It's what lights up the world ROCKVILLE, Md. (ChangeWave) -- When the power goes on and the lights turn bright around the world, chances are good that the electricity firing up the latest power plant in China is a coal-fired plant running on none other than imported coal from the U.S. Coal deposits here in the good old U.S. o f A. are the richest in the world, with the best burning coal in the world; kind of like how Saudi Arabia is the king of light sweet crude oil, the choice grade for gasoline. U.S. coal is the choice grade for getting the most heat out of a short ton of coal. Just to get a handle on why and how the price of coal is soaring, consider the fact that China is activating one new coal fired plant every week of the year. China makes up about 43% of emerging market demand and coal is right at the top of the list with the Chinese economy growing at a torrid 10.3% for the second quarter of 2008. U.S. coal markets are dynamically responding to the scarcity of coal in the global landscape. With severe supply constraints in traditional coal export nations, including flooding in Australia, power outages in South Africa and coal shortages in China and India, U.S. coal will increasingly be valued high for purposes of supply diversification. There has been a paradigm shift in the coal industry. The U.S. became the swing supplier of coal for the global market in 2007, and demand has only accelerated into 2008. U.S. coal exports are estimated to have grown by 10 million tons in 2007 and are expected to grow by another 20 million tons this year. U.S. utilities alone have bought up what is now a record 51-day stockpile, increasing inventories to hedge against future supply disruptions. What the utilities know that isn't getting enough press is that as much as we all want to power the country with wind, solar, hydro, biomass and even nuclear, all those advances in alternative energy combined are forecasted to make up only about 7% of our nation's power needs by 2020 -- and that's if all the stars line up for rolling out these new technologies. Coal is here to stay. In fact, according to government statistics, coal is responsible for 47% of the power generated in the U.S. today. By 2030 the Department of Energy forecasts that coal will account for 51% of power output, an increase of 4% in the wake of all the momentum behind alternative energy. That's a bit of a reality check for the green movement. We need a lot more power generation sooner than the green industry can deliver. Estimates from leading coal producers forecast that 14 gigawatts of new coal-fired capacity are now under construction in the U.S., representing the addition of roughly 50 million tons of new annual coal demand. These plants will be phased in over the next four years, with half of them expected to start up by the end of 2009. Another 8 gigawatts, representing more than 30 million tons of additional incremental annual coal demand, are in advanced stages of development with the completion of the majority of these plants expected by 2013. U.S. demand aside, coal producers are rapidly shifting greater percentages of their coal supplies to foreign markets at prices that can run up to 70% above current domestic steam coal index prices. Global thermal coal use continues to increase to fuel the growing number of coal-fueled generating plants. Stockpiles are very low in many nations, and producers and shippers are running at high capacity levels to try to keep pace with demand. The industry has priced significant volumes off of the reference price of $125 per metric ton for Newcastle thermal coal, and strong demand since the settlements has sent spot prices to $175 to $200 per ton. Unlike oil prices, which have declined almost $30 per barrel in the past month, coal prices have actually increased in four of five categories as published by the Energy Information Agency, a U.S. government reporting agency.
Source: Energy Information Agency Coal stocks have been undeservedly punished with the sell off in crude oil, natural gas and agricultural commodities. The real world shows that coal prices are holding up at historical highs going into the month of August. Numbers don't lie, but markets tend of over react and overshoot. I believe the best coal companies listed are tremendous buys at current prices. The big picture future for coal is cleaning it up. Coal to liquids is just a very critical important new technology for the industry. It will allow coal to be converted and in the process to be cleaned so it becomes a fuel that becomes environmentally compliant. That's really the future for coal, to be a fuel that's environmentally compliant. The CEO for Joy Global (JOYB), the leading equipment maker for the coal industry, was quoted saying "We already know that coal is very cost efficient. We know it's very reliable. We know there's tremendous security for production in the U.S. Once it's environmentally compliant, we have all the aspects of coal to make it a continued preferred fuel source for power generation, and also on a coal-to-liquids basis it will begin to open up the transportation markets as well. So I think the long-term outlook for coal is very positive, and it's very positive specifically because of the potential for commercial technologies."
I can only echo those comments. At today's sold out prices, coal stocks have retraced up to 50% of their 2008 gains. I fully believe investors should initiate and add to positions .
BWN Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
