Coal comes back? Oh ya!
July 08, 2008
– Comments (4) |
RELATED TICKERS: ACI
, BTU
, YZC
Rich Duprey had an interesting commentary on the "coal correction" last week:
The factors that have driven coal prices up, though, haven't changed. With oil prices hitting new highs seemingly every day -- Hey! How about a correction in oil for once? -- demand for cheaper alternatives are being sought, and low-grade thermal coal is one answer. Moreover, demand remains high for metallurgical (or coking) coal, which is used in the production of aluminum and steel. With the economies of China and India reliant on both kinds to fuel their growth, there's little doubt that coal, like oil, will remain dearly priced -- even after this correction.
Coal is responsible for 40% of the world's energy needs, while places like India rely upon coal for nearly 70% of their energy supply. China counts on coal for 78% of its supply, and the country accounts for one-quarter of the world's coal consumption. Natural and manmade influences have also affected supply.
South Africa's power grid outages earlier this year, coupled with floods there, in Australia, and even here in the Midwest, have served to reduce supplies. Meanwhile, the Chinese government is forcing miners like Yanzhou Coal Mining (NYSE: YZC) to increase production but lower prices.
I agreed and bought coal buyers at the end of the first day. I was expecting the possibility of a quick rebound or another down day followed by a slow uptrend. If you are planning on re-upping your coal picks I wouldn't wait too much longer. The fed talking about raising interest rates just shows how dumb they were in the first place to lower them so far. This news should push commodities back up.
Fool On.
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