{"id":36605,"date":"2013-03-04T12:39:23","date_gmt":"2013-03-04T17:39:23","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=36605"},"modified":"2013-03-04T12:39:23","modified_gmt":"2013-03-04T17:39:23","slug":"is-the-worst-over-for-coal","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/03\/04\/is-the-worst-over-for-coal\/","title":{"rendered":"Is the Worst Over for Coal?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

As the fracking boom has generated massive new interest in domestic oil and gas production, coal has become the red-headed stepchild of the energy industry.\u00a0 Soaring new supplies of natural gas have led to a glut that has kept prices depressed for the past several years, but they’ve also pushed down the prices of energy competitors such as coal.\u00a0 Coal prices collapsed during the 2008 meltdown and are still less than half their old highs.<\/p>\n

In an age of climate change awareness, coal is about as politically incorrect as you can get.\u00a0\u00a0 By Energy Information Administration estimates, coal use produces 77% more carbon dioxide than natural gas for a comparable amount of energy. \u00a0This is a tough sell in an era when we have abundant alternatives. \u00a0Not surprisingly, coal consumption fell in the United States in 2012 and is expected to rise only modestly this year and next.<\/p>\n

So what are we to make of this?\u00a0 In the age of cheap gas and environmental awareness, is coal an industry in terminal decline?<\/p>\n

Absolutely not.\u00a0 Though we may associate coal with mines in America\u2019s Appalachian region, China is the most significant player in the coal market.\u00a0 China consumes nearly as much coal as the entire rest of the world combined, and despite being a major producer of coal for its own domestic use, China also imports massive quantities for use in the production of both energy and steel.\u00a0 In 2012, a year that saw anemic economic growth, China\u2019s coal imports rose by nearly 60%.<\/p>\n

Demand for coal among other emerging markets, such as India, is also on the rise.\u00a0 India is expected to overtake the United States as the second-largest consumer of coal by 2017, and its coal imports are expected to grow by well over 50% between now and then.\u00a0 And even in the developed world, coal consumption is on the rise in several countries, most notably the manufacturing juggernauts Germany and Japan.\u00a0 Worries of global warming have taken a backseat to fears of nuclear meltdowns after the Fukushima incident.<\/p>\n

Coal\u2019s pricing is also not as weak as the action of the past five years might suggest.\u00a0 Looking at the longer term picture<\/a> we see a very different story.\u00a0 Aside from the 2007\/2008 price spike, which saw the thermal coal CAPP price soar from $40 per ton to nearly $140 per ton in a matter of months, the price of coal has been relatively stable by energy standards.\u00a0 Prices have spent most of the past 12 years in a fairly tight band of $40-$80 per ton.<\/p>\n

\"KOL\"<\/a><\/p>\n

Market Vectors Coal (NYSE:KOL)<\/p>\n<\/div>\n

\u00a0So, is coal a viable investment theme?\u00a0 Judging by the performance of the Market Vectors Coal ETF (NYSE:$<\/span>KOL<\/a>)<\/strong>, you might have second thoughts.\u00a0 Coal stocks have fallen by half over the past two years and have barely budged at all since June of last year.\u00a0 Yet coal stocks as a group trade for just 14 times rather depressed earnings, and the worst is likely over for coal pricing, as natural gas prices have shown some sign of stabilizing.<\/p>\n

If you are pondering an investment in coal, Peabody Energy (NYSE:$<\/span>BTU<\/a>)<\/b> is not a bad option.\u00a0 Peabody has enormous coal mining operations in Australia, which now account for the majority of the company\u2019s profits.\u00a0 The Australian mines are well placed to serve China\u2019s insatiable need for coal, which should only increase now that China is showing signs of life again.<\/p>\n

Peabody is reasonably priced at 11 times expected earnings and just 0.7 times sales.\u00a0 This is not rock-bottom pricing by energy stock standards, but it is by no means expensive.<\/p>\n

Longer term, the company\u2019s biggest risk is a true hard landing in China, not the 7.5% growth we saw in 2012 that (only in China) counts as \u201cslow growth.\u201d<\/p>\n

By \u201chard landing,\u201d I mean a prolonged economic contraction not unlike that experienced by Japan starting in the early 1990s.\u00a0 I expect that hard landing to come before the end of this decade due to the country\u2019s aging demographics and its apparent overbuilding of infrastructure in most of the higher-income coastal regions.\u00a0 But in the meantime, a short-to-medium-term rebound in China should bode well for coal prices and for coal stocks such as Peabody.<\/p>\n

Disclosures: Sizemore Capital has no position in any security mentioned at time of writing. \u00a0 \u00a0This article first appeared on MarketWatch<\/a>.<\/p>\n

SUBSCRIBE\u00a0<\/a><\/strong>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today.<\/p>\n

The post Is the Worst Over for Coal?<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

\n

No related posts.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

By The Sizemore Letter As the fracking boom has generated massive new interest in domestic oil and gas production, coal has become the red-headed stepchild of the energy industry.\u00a0 Soaring new supplies of natural gas have led to a glut that has kept prices depressed for the past several years, but they’ve also pushed down … <\/p>\n

Continue reading “Is the Worst Over for Coal?”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-36605","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/36605","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=36605"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/36605\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=36605"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=36605"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=36605"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}