7 Signs Coal Is Still Hot

Finding a needle in a haystack really isn't so hard, as long as you start your search right where the needle is.

Although shares of coal miners have essentially been run off a cliff since June, the evidence indicating that we haven't heard the last from coal is easy to locate; as long as Fools are looking in the right places. Since June, shares of the Van Eck Market Vectors Coal ETF (NYSE: KOL  ) have lost 39% of their value.

Beginning as a typical correction for a commodity sector that was truly on fire, the pain for investors in coal mining stocks has since been exacerbated by a 20% decline in spot prices for thermal coal in Asia, a broader energy correction that included a 45% drop in natural gas prices, and a suddenly strengthening U.S. dollar.

As a result, we find former highfliers like Patriot Coal (NYSE: PCX  ) and CONSOL Energy (NYSE: CNX  ) down more than 50% from their June highs, while global player Peabody Energy (NYSE: BTU  ) is off similarly. Judge the following evidence for yourself to determine whether opportunity lies right next to the needle in the haystack:

  1. The world's largest thermal coal exporter, XSTRATA, recently proposed a 40% price hike for coal sold to Japanese utilities.
  2. Joy Global (Nasdaq: JOYG  ) reports that thermal coal supplies in China remain below a three-day supply.
  3. Coal imports in Taiwan rose 7% in July from prior-year levels, after a 14% decline reported for June.
  4. London-based IPSA Group will double its capacity to build power plants in South Africa, even as the world's largest coal export terminal is considering further additions to the capacity expansions already under way.
  5. Acquisition activity within the sector has continued unabated, including Teck Cominco's (NYSE: TCK  ) purchase of profitable JV partner Fording Canadian Coal Trust.
  6. Australian miner Straits Resources last week called the outlook for thermal coal prices "extremely favorable," citing "unprecedented tightness due to strong demand from Asia."
  7. At the last G-8 forum, coal was a major focal point among proposed answers to the world's insatiable thirst for energy.

Accommodations aboard the coal train have not been terribly cozy of late, but this Fool remains aboard for the long haul.

Further Foolishness:

The "Coal" tag within the Motley Fool CAPS community lists 21 coal companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun!

Fool contributor Christopher Barker captains yachts and writes about stocks. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Peabody Energy, Teck Cominco, and the Van Eck Market Vectors Coal ETF. The Motley Fool has a disclosure policy.


Read/Post Comments (19) | Recommend This Article (14)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 12, 2008, at 1:33 PM, UltraContrarian wrote:

    The price of coal may well be headed up. But like gold miners and unlike oil companies, coal miners generally sport poor valuations and aren't as attractive as their base commodity.

  • Report this Comment On September 12, 2008, at 2:03 PM, Brettze wrote:

    It is so strange to me that we are investing heavily on alternate energy while not investing as much in clean coal technology. Our common goal is to reduce carbon dioxide emissions and I just figure that it would take much less investment dollars to reduce carbon dioxide coming out of coal fired powerplants than to invest in alternate energy that emits no carbon dioxide. I dont kinow the figures but I can guess the math. As you probalby know that utilites had been installing scrubbers on coal fired powerplants to reduce sulfur emissions. We are not even starting to install clean coal technology that can return carbon dioxide back into the ground and kept in there. We are still building more coal fired powrplants and make Earth warmer tomorrow. Are we going out of our minds or what? Huge ice is breaking off up there in the Poles. We are still twiddling our fingers or what? I dont think we can continue to add coal fired powerplants without getting Earth out of whack anytime soon.

  • Report this Comment On September 12, 2008, at 2:07 PM, Brettze wrote:

    It is the silly season on this election year.. Is global warming for real or what? maybe if we all buy small cars instead of SUVs and PickUps , it will be enough to reverse the global warming without any need to worry about upgrading our existing and future coal firew powerplants to carbon dioxide free emission quality. I dont really know. Dont you think we should do both to help reversing the global warming much quicker. Iam shrugging my shoulders, huh?

  • Report this Comment On September 12, 2008, at 2:10 PM, Brettze wrote:

    I would suggest to anyone who dislike coal to invest in coal stocks to get the profits out of them and refunneling the profits into alternate stocks. Coal stocks look more certain of any upswings than alternate stocks this time around. Solar stocks and wind stocks had gone up so much that there is little upside left for now until a long time later. Coal stocks had fallen a lot recently and there is no downside left and everyone is now fixing to get in them for a quick profit. Buying coal stocks dont make you any more of a hyprocrite than others. This will piss Wall Street off to know that alternate people are getting into coal stocks to suck profits out of coal stocks and refunneling itno alternate stocks.

  • Report this Comment On September 12, 2008, at 2:11 PM, Brettze wrote:

    I support solar stocks but I invest in coal stocks to goose capital gains away from coal .. I dont like coal as well as local firewood and charcoal use around here.

  • Report this Comment On September 12, 2008, at 2:17 PM, XMFSinchiruna wrote:

    I disagree, and think oil companies have been far more prone to high valuations than gold miners have. Gold miners across the board are severely undervalued at this stage. Coal mining stocks, following the sell-off, have significantly underestimated the added revenue that will continue to come from a whole new paradigm for coal prices. We witnessed the beginning of a multi-year bull market for coal miners when the stocks took off earlier this year, and thanks to the massive commodity correction of 2008,investors have a chance to practically get in on the ground floor again.

    Value is in the eye of the beholder, and to assess proper valuations for coal miners it's important to consider the recent acquisitions.

    Thanks for the comment.

  • Report this Comment On September 12, 2008, at 2:19 PM, XMFSinchiruna wrote:

    Sorry Brettze... that comment of mine was directed at the first comment above. :) I agree with you about the unfortunate environmental impacts from coal, and hope the world can come to its senses quickly and begin building up solar and wind generation in a massive scale.

  • Report this Comment On September 12, 2008, at 2:55 PM, Brettze wrote:

    You missed my point.... If the issue of carbon dioxide is severe enough to warrant immediate new requirements on emission controls . It may have adverse effects on the coal prices as utilities will probably elect not to continue operating the powerplants and abandoning as many of them as possible. My question is whether it is cheaper to outfit the exisitng coal powerplants with new emission controls for carbon dioxide or install new windpower or solar modules . The global warming issue appears to be bigger and sooner than we expected. I dont think we can wait even another second or two on addressing the global warming issue. I am betting that utilities will get much tougher with coal producers in the coming long term contracts due to expire this year and next. The earnings will be constantly downgraded on coal producers as utilites might be already preparing for carbon dioxide emissioin control systmes that will cost tens of billions. I am assuming that utilities still think it is more ecnomical to keep the exisiting coal fired powerplants going with the new carbon dioxide emission controls installed rather than shutting them down. I know there is still no sense of urgency so far but it can pop up anyday. Utilites is already up to their eyes in loans for installing recent scrubbers for sulfur emission controls. Utilities will be putting pressure on coal produceers even harder than ever on prices.

  • Report this Comment On September 12, 2008, at 2:58 PM, Brettze wrote:

    I compare coal to SUVsa nd PickUps. Nobody want them anymore.

  • Report this Comment On September 12, 2008, at 3:02 PM, Brettze wrote:

    Peabody Coal control 9 billion tons of coal which is very big . When you see that Peabody Coal is not valued for its massive assets by far, it may be tempting to buy the stock. I have the hunch that the world leaders are already taking note of the rapidly disappearing polar ices up there and down there and are becoming concerned. I predict swift action on coal fired powerplants anytime soon and coal producers will be hit real hard.

  • Report this Comment On September 12, 2008, at 3:03 PM, Brettze wrote:

    People all over the world are pulling together to squeeze the demand on fossil fuels like oil, coal, gas and charcoal lighter fluid...and firewood , too.

  • Report this Comment On September 12, 2008, at 3:07 PM, Brettze wrote:

    I know that we had been talking about global warming for years but I believe that the time is near for real drastic action. Some will be whacked bad! Coal proudcers is the most likely to be whacked big time.

  • Report this Comment On September 12, 2008, at 3:11 PM, backwardated wrote:

    Coal demand will remain strong up to 2010 when all the new investment in coal mines over the last several years starts coming on line in the form of tons. Unfortunately for coal producers that co-incides with the peak in Asian power demand and also is around the time that port infrastructure around the world gets ramped out to handle all that increased capacity. Until then there could be a few coal price spikes left in the pipeline. So get coal now while it's still hot but make sure you sell out before end of 2009. Trust me, I'm a physical coal trader for a large Swiss trading company.

    Clean coal doesn't exist. So a really expensive process to capture CO2 might be developed. What about the SOx, NOx, ash, boron etc.? Coal isn't pretty but it will always be cheap relative to other fuels. Once solar is established then coal will die its natural death i.e. solar is free once the technology and infrastructure has been built out.

  • Report this Comment On September 12, 2008, at 4:02 PM, UltraContrarian wrote:

    I'm sure you know quite a bit more about these sectors than I do. But other than the huge ones like Vale, BHP, Rio Tinto, and Teck, most mining companies have lots of debt and very little book value. I think the performance of PCX, CNX or BTU depends much more on coal appreciating than say PCZ, PBR or ESV depends on oil appreciating.

  • Report this Comment On September 13, 2008, at 3:49 PM, Brettze wrote:

    Clean coal doesnt exist because coal producers are able to dictate the high prices for coal . Coal users skimp on pollution controls. We are presently installing scrubbers for high sulfur coal. This is besides the issue... We havent started capturing CO2 yet. We are still undecided where to build the first clean coal tech powerplant as a demonstration. I dont know how much more it will cost to build a coal fired powerplant with CO2 capture technology and all the previous usual pollutin control systems thrwon in. It is so ironical that homeowners are still allowed to burn firewood and charcoal without any pollutin control whatsoever. We burn millions cords of firewood annually, I wonder how much pollution come from firewood. Maybe firewood should be controlled for pollution first before we start working on coal , dont you think? Sure smog control systems in your chimney. what else?? I am living next door to you, so scram it!

  • Report this Comment On September 13, 2008, at 3:51 PM, Brettze wrote:

    Also dont forget about farm burnings of dead crops... Farmers still dont compost, dont they? They are so profit driven that they are more than happy to add to air pollution as long as EPA is burying head in the sands..

  • Report this Comment On September 13, 2008, at 3:53 PM, Brettze wrote:

    We went to the extremes of everything. we focused so much on controlling pollution on one end while allowing polluting on other end like firewood and charcoal. scientists measure air polluitn 500 foot up in the air but never measure air pollution coming out of chimneys where poeple live too close around. This is really insane!

  • Report this Comment On September 13, 2008, at 3:56 PM, Brettze wrote:

    People are still not afraid or educated about the horrors of soot and particulates coming from firewood and charcoal and even cigarettes. There is eerie silence on that... We must be figuring that there are some people who cannot afford expensive heating bills and therefore should be allowed to burn cheap firewood to survive.. DUH? we can help them pay for their heating bills to keep air clean. We point at coal as the dirtest fuel while curling up reading a book in front of a blaring fireplace!!! chuckle

  • Report this Comment On October 08, 2008, at 3:19 PM, BrianFooley wrote:

    Can anyone say falling knife? They were still saying buy coal when it was over 100, and look how much money you lose if you listened then. Prospects for a real rally are slim when worldwide credit is a problem... all we will see in the short term is a fool's rally (small f) until things really pick up, this one is headed down.

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