Peabody Energy: Will Abundance of Chinese Coal Cause Price Weakness?

News out of China today is that quotas for coal exports were higher than expected at 15.9 million tonnes, putting the export quota total for the year above 47 million tonnes. While Chinese officials say that it’s too late in the year to put the quotas into effect, the news does reflect that China isn’t converting to a net importer of coal just yet. They appeared to be right on the precipice earlier in the year, but the recent post-Olympic slump has allowed domestic inventories to rise.

While a few million tonnes isn’t enough to shift global supply dynamics, is does hint at possible stockpiles building up elsewhere in the developing world. Peabody Energy (PBU) is a big player in the international markets, and while most of 2009’s production is already contracted, the bit at the margin is leveraged towards what it saw as “growth markets,” and most of these markets have been ravaged in recent weeks.

Longer-term, Peabody’s fortunes will be determined by how fast the roughly 300 gigawatts of coal-fired electric generation being constructed around the world would be completed. The global credit crunch has slowed down countless budgets and capital spending plans, but recent liquidity injections should begin to make their way into the financials and outward.

Disclosure: Author does not hold positions in the companies mentioned.

Comments

[SurferJoeMaui:]

...Huh.......
...Hmmm.........

2008 Nov 04 10:58 AM

[Urbane Gori...:]

I'm a fan of BTU and have owned it lately. Aside from RTP and BHP, they seem to be the best coal play for Asia. When it comes to pass that Asia begins to ramp up again, then the Asian coal story should move up again. However, it has been demonstrated that China in particular is burning poor quality coal, and that which they cannot get within their borders they are buying on the spot market out of Malaysia. This is not the high quality product that BTU, RTP and BHP provide.

jegan ;-)

2008 Nov 05 01:25 PM

[Greg Pinelli:]

Made my first venture into BTU today..price fell to $28 and change. The situation with coal rings a familiar bell. Hilary Clinton was going to corral the health care system and pound the pharmaceuticals to dust..that lasted about 6 months. She was politely shoved to the back of the room and pharma exploded.
BTU (and other quality suppliers) and coal aren't going to become obsolete because of Obama's preferences or predilections. Most of the worlds ready to use electricity and heat come from coal. Any other "cleaner" infrastructure will take years to come on line and tens of billions to finance...good luck. When people need what they need high minded environmental convictions get tossed with yesterdays newspapers.

2008 Nov 06 10:28 AM