China May Be Eying Metallurgical Coal Acquisition

China's $680B stimulus is boosting the economy faster than many westerners expected. Q3 GDP was 8.9% on a annual basis. It was reported that China may reach double digit growth in Q4 as the stimulus kicks in full speed. The second largest economy in the world may reach self sustainability in 2010. The G20 meeting over the weekend confirmed that stimulus around the globe will remain intact till 2011. As a result, demand for raw materials will pick up quickly both in China and here in US.

One on the materials that is in strong demand is metallurgical coal. Part of the reason for that is China doesn't produce high quality metallurgical coal and the domestic production is really low volume, and it depends on import from Australia and US to meet its demand. High quality steel products need high quality metallurgical coal. Earlier this year, China's Chinalco tried to take stake in Rio Tinto (RTP) to lock the supply of iron ore and metallurgical coal from Australia. However the deal didn't go through as Rio Tinto turned to BP (BP) for help on its funding shortage.

So it is no surprise to see China widen its search to the west. There are high quality metallurgical coal producers in US, most of them exporting to China. So China is depending on these companies for supply. Alpha Natural Resources (ANR), Massey Energy (MEE) and BP PLC are all seeing strong demand from China well into 2010. Alpha Natural Resources is particularly interesting.

Can any Chinese company take a stake in these companies to lock in metallurgical coal supply for the nation? We will see. President Obama's visit to China may shed some light on how the two nations can promote free trade to jump start the global recovery.

Disclosure: no position

Comments

[john s. gordon:]

i believe british columbia also exports high grade coal to the pacific rim.
the coal mined in australia typically requires beneficiation before shipment, thereby generating large piles of rejects.
> jack

Nov 10 08:43 AM

[oilsands:]

makes sense; actually I've been expecting this scenario. China needs to trade our treasuries for tangible assets, so why not what they already import.

Nov 10 10:18 AM

[Stone Fox C...:]

seems very unlikely because ANR is still way below it record high last year. Shareholders aren't going to let it go at these levels.

Nov 10 10:44 AM

[jarco:]

Buying hard in ground assets constitutes ownership of land and should be prohibited. Be interesting to see if Obama sells out the US to China

Nov 10 04:40 PM

[toomuchgas:]

China bought some TCK already bringing it back from the brink. Would not be surprised to see them buy more.

Nov 10 06:17 PM

[einstein p ...:]

Watch HTE and see if the Canadian government is willing to sell off natural resources and security to a foreign country. I owned the stock and took the profit, as I'm not sure.

There is no doubt about the Obama position regarding coal, provided you believe anything DC has to say these days. I'm long of ANR from 15, along with several other coal, natural gas, and alternative plays which use the two efficiently and with an eye to the future --- both in Canada and the USA.

Beware of the geo-political climate. You're not in Kansas anymore, Dorothy. Any disruption and oil goes to 100 a barrel and higher, which is hopefully a dollar denomination.

Nov 12 07:57 PM

[richjoy403:]

Unfortunately, much of the political class (and the Al Gore class) in this country believe coal is less than worthless. Be reasonable (we have lots of coal), but careful with regard to selling our natural resourses--they are strategic assets.

Nov 13 12:14 PM

[bindlepete:]

TCK is an obvious choice for further buy- in. Give them enough money and they may reopen that very attractive gold mine development in Alaska.

Good for CNI as well as a new port in Kitimat could save a lot of money in transport.

Nov 13 12:33 PM

[keithpiccir...:]

This lines up with Ken Heebner's month long media campaign of metallurgical coal's imminent rise in prominence.

Nov 14 03:07 PM

[SlamNT:]

I would be hard pressed not to be in coal stocks right now...about 3.5% of my overall portfolio. Without a doubt the two best plays in coal at the moment are Canadian based. Keep an eye on Western Coal (WTN-T) and my favorite Grande Cache Coal (GCE-T).

Nov 15 08:41 AM

[Bensondog:]

In British Columbia there is Western Coal Corp. which has said it is increasing its output from 7million to 10million tonnes. This is high quality coal which is used by the US steel producers.
They have just appointed a new CEO/President so seem set to increase their presence in the market with new mines opening up now they have the $62million they need for the infrastructure and project costs.................... watching I guess WTN-T

Nov 20 08:09 PM