Wow, not sure when thermal coal prices will bounce back but I am very confident that the price of natural gas will be around double the current price by the end of the year. (might happen sooner?) Thermal coal prices at current levels is enough for companies to still make money. But it's really irrelevant for coal exploration/development companies other than sentiment. This in my opinion is the time to buy coal stocks with clear paths to production that have modest EV/t valuations and are well funded for at least the next 1 to 2 years.
Equities? I think for a while it will be range bound due to the macro environment. This ALP government of ours certainly isn't helping equities. It will be a case of being stock specific in 2012. The market is very afraid at the moment given that the US hit 4 year highs a week ago and our market is so far away from levels of 4 years ago.
I am anticipating a bit of M&A in the 2nd half of this year in the coal sector from Asian companies if stock prices go lower.
Well, not sure if and when the US shale gas companies go bust but they will certainly cut back production purely and simply because they cannot make money. BHP and Cheasapeake in the US have both said that they can't make any money at current prices and hence have both halted any shale gas expansion plans. So if they can't make money at these prices who can? More importantly, who is?
The US has been flooding the market with coal and until they curb this there will be pressure on thermal coal prices. In my opinion, the market does not understand that thermal coal production cut backs can only be good for longer term pricing.
I believe Japan, China and other Asian countries should keep a floor on prices for the short term. As you are aware Japan only has one operating nuclear reactor out of some 50 odd in the country. Is gas or coal their answer to their energy requirements? Short term maybe gas, longer term coal in my opinion.
I also believe that the market does not understand the impact of a growing economy of India and China over the next 10 years.
At current growth levels (7.5% pa) these two economies alone are set to more than double in size by 2022. Expanding economies mean expanding energy requirements.
If you don't believe me, work out $100 compounding at 7.5% per year for 10 years. See what you get.
And natural gas will be at these prices by then? The current "natural gas glut" and natural gas price is determining thermal coal prices today, not next year and years after.
