Coal ProductionFirst let's take a look at demand on a global...

Coal Production

First let's take a look at demand on a global scale. It appears that supply falls short of meeting global demand this year by 25 to 35 million tons. Several officials have also estimated that amount would double to 70 million tons during 2009.

In the U.S., demand is expected to surpass supply by 15 million short tons. Again, we have to think back to last week.
Considering that the chances of a significant production boost are slim, we can expect the coal markets to tighten over the next two years.

With approximately 270 million short tons of recoverable coal reserves (I'm referring to both bituminous and sub-bituminous coal), the U.S. has plenty in the ground. But as you already know, there's a huge difference between having it in the ground and pulling it out.

U.S. production, however, won't be enough to make up the difference. In fact, one of the headlines I read this morning pointed to the struggle that coal producers will have. Nearly 40 million short tons of coal won't be produced due to the stringent environmental regulations and lengthy permit process. Add that to the millions of tons of coal production stopped because of Midwest flooding.

Even though we may see a slight correction in coal prices as new production comes online, I believe we can still remain bullish on coal prices over the next two or three years.

Now, I understand that you're probably not reading my column for your health. Like myself, most of my readers are always asking how they can invest in these tight markets. Even if U.S. production won't be able to make up the demand shortfall, higher coal prices will ensure a decent return on your investment.
Until next time,



Keith Kohl

Energy and Capital