As Coal Skyrockets, Analysts Are Late to the Party 16 comments
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What can I say - this is simply an epic move. As I keep saying,coal reminded me of fertilizer last summer/fall - totally underestimated. I am simply amazed by the strength and voraciousness of this move, even as a super bull on the group. Yet another upgrade in the group and you are seeing some huge earning revisions and price targets across the board - analysts finally "get it" - after about 40-70% 1 month moves across the board. Always timely these analysts. Again, these guys focus on 1 industry (career/full time job devoted to 1 sector) yet missed the whole rocketship, only after the ship is in orbit do they "get it"? Where were they 2 months ago when the writing was on the wall i.e. [Apr 7: Posco (PKX) Agrees to 200% Coal Price Increases]? Now come the upgrades?Again, exactly the same scenario that played out in fertilizer. Just more "value add" from these fellas.
- A Friedman, Billings, Ramsey analyst significantly raised his coal price predictions and upgraded a major miner to "Outperform," suggesting that demand will far outpace supply through 2010.
- Analyst David Khani raised his price forecast for metallurgical coal, which is used in steel production, by 90 percent for 2009 to $130 per ton. For 2010, he raised his expectation by 130 percent to $250 per ton.
- For steam coal, used in boilers to produce electricity, Khani raised his predictions by about 25 percent in 2009 and 2010.
- Based on his new price expectations, he upgraded Massey Energy Co. -- the fourth largest U.S. coal producer by revenue -- to "Outperform" from "Market Perform."
- Khani noted that lower supply and booming international demand is keeping the metallurgical coal market extremely tight. The steam coal market in the U.S., he said, is undersupplied as power generation demand accelerates the need for the commodity. He suggested that supplies will dwindle at the end of next year and prices should rise at a rapid rate.
- The analyst lifted his 12-month price targets for all the U.S. coal companies he covers, and added Patriot Coal Corp. as a "Top Pick."
- Risks: Khani said a weakening global economy, increasing credit defaults and soaring prices for drybulk ships -- which transport coal overseas -- could all weigh down the sector's growth rate.
TheStreet.com has an in-depth article as well, nothing new to our readers who have been following along this story before the mainstream jumped on [Dec 6: Coal Stocks Quietly in Bull Market] Judging from web traffic in which I'd say about 1/2 of my Google hits the past few days are some incarnation of "coal" (just like 3 months ago they were some incarnation of "fertilizer" or "agriculture" or "rice"), I can see the story is catching on. Which again, makes me short term concerned about the group.... but we'll keep riding with what we have left.
- The price of U.S. coal futures solidly crossed above $100 per ton this month, more than double what they were six months ago.
- About two-thirds of the world's coal currently goes to fuel electrical plants and the rest goes primarily into steel and concrete production. New demand is coming from emerging markets. Together, according to U.S. Department of Energy estimates, China and India will account for 70% of the increase in world coal consumption over the next two decades.
- The biggest difference is that global supply conditions have fundamentally changed over the last year, especially in the two largest consuming countries.
- China, the largest producer of coal in the world, is no longer coal self-sufficient. The booming economy was made possible by more electric power and steel plants, which both require coal to operate. The Chinese will eventually have to bring in more shipments of coal at higher prices, putting more upward pressure on global seaborne coal prices to sustain economic growth.
- The story is nearly the same in India. Despite its reserves and production, India is not coal self-sufficient either, and has reduced exports too.
- Supply disruptions and the lack of coal self-sufficiency in Asia and coal supply disruptions have created an immediate global problem.
- Australia is normally the largest exporter of coal in the world. Last year, Australia accounted for 65% of the world's coking coal exports. But, due to disastrous floods, six of the largest coal exporters in the world legally failed to deliver on contracts. This is a huge drop in supply.
- Normally, other coal exporters would fill the gap. But South Africa has experienced structural power shortages and Russia is focusing on exporting gas, not coal. So that leaves the business to other players -- like the U.S. coal companies that also benefit from a lower dollar exchange rate.
- New coal capacity can't be turned on overnight. It takes time, money and corporate/government partnerships to create new integrated mine-railway-port projects for coal. (sounds a lot like potash fertilizer, eh?)
- While many coal production projects have been announced worldwide, these are not likely to have an impact on current supplies until 2010. In the meantime, prices for available coal will continue to climb.
- The largest U.S. exporter of coking coal is Alpha Natural Resources (ANR), with a 22% market share of exports.
- The coming higher coal prices will drive larger public companies to buy into coal companies to ensure they have supplies. Even smaller coal companies with poor earnings records are candidates for bolt-on acquisitions. (we've discussed this in the past - just another potential upside to these stories)
- Take a look at Patriot Coal (PCX). It posted losses last year, but the stockis up 190% just in the last six months. The acquisitions, new capital raised and higher coking coal prices are making investors salivate over the potential returns.
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This article has 16 comments:
Top picks are: PCX, ANR, MEE
The above still seem pricey. What do you think of International Coal Group (ICO)?
While the pricing power is improved, this is very much an investment on a stock by stock basis, just like gold juniors.
Keep up the good work Mark!
Stockaccumulator
Good article, but a far better buy today would be PBR during this brief rare, mini-pullback in PBR...Read the below carefully researched article from "The street.com on Petroleo Brasileiro:
" (PBR - Cramer's Take - Stockpickr) shareholders have earned a 172% return on their investment over the last 52 weeks.
"If last week's positive earnings announcement is any indication, this Brazilian oil company has a lot more going for it than just good-looking charts (though the charts look good, too.)
PetroBras Returns Continue to Beat Oil and Brazil Investment Benchmarks
PetroBras boasts nearly a $300 billion market capitalization (its market cap just passed that of Microsoft(MSFT - Cramer's Take - Stockpickr)).
In fact, it now claims to be the third-largest publicly traded company in the Americas, behind Exxon Mobil(XOM - Cramer's Take - Stockpickr) and General Electric(GE - Cramer's Take - Stockpickr).
With a presence like that, it's clearly a bellwether stock both for the Latin American region and in the oil sector.
PetroBras does a lot: It explores for and produces oil and natural gas. It sells surplus production in Brazil and foreign markets. PetroBras operates oil tankers, distribution pipelines, marine, river and lake terminals, thermal power plants, fertilizer plants and petrochemical units. It is also building new pipelines for ethanol distribution and recently set up a separate operation to manage all its ethanol activities.
Here are three reasons I like PetroBras.
1. The recent oil and gas announcements are real.
In the last six months, PetroBras has discovered three super-giant oil fields in Brazil's offshore Santos Basin. The company also confirmed in January a major natural gas and condensate deposit in the Jupiter area.
If estimates of 33 billion barrels in reserve from another field (Carioca-Sugar Loaf) prove correct, then this ranks as the third-largest oil field in the world after Saudi Arabia's Ghawar (66 billion barrels) and Kuwait's Greater Burgan (46 billion barrels). "
Rudy Martin the writer ot this is the former director of research for TheStreet.com Ratings. Earlier he worked 25 years in investment research and management positions with Fidelity Investments, Lincoln National, Dean Witter Reynolds and Transamerica Investments. He began his career as a securities investment analyst at Duff and Phelps where he published equity and fixed income securities investment recommendations. Martin holds a master's degree in finance from Kellogg Northwestern University and is also a Chartered Life Underwriter. "
It is expected that PBR will have a huge number for this coming quarter's earnings announcement very shortly. Never has there been such a huge expected net profit number from any oil company, and due to the April and May record price of crude. The graphs show the accumulation going into and through each earnings announcement to be far more impressive than any other large oil/gas company... One will have to take great risk with smaller similar companies... PBR will make you money next week/month, and expect $140 by next year this time for PBR... todays $68 is a brief temporary bargain... in a week or so PBR will be back to its all time high of $78... this is a rare opportunity... research it, look at the graphs... amazing for such a large well established company that is perhaps the microsoft of oil...
I may buy 20,000 more shares of PBR today or early tommorrow...
Warmest regards... the STOCK ACCUMULATOR
Yanzhou said in a statement the prices were 92.1 percent higher than in 2007, while the volume was down 9.1 percent. "
www.prosefights.org/co...
Not true.
See the date on this article here:
www.crossprofit.com/ar...
If we are not mistaken, we preceded your first article on the topic by several weeks at least. The above mentioned article was published on SA as well. In October 2007 you were taking profits in BTU and CNX.
Trader Mark, can we have some historical accuracy please; perhaps give credit where it's due? ;-)
Thanks,
CrossProfit
Just like taking profits in December 2007 was prudent considering the January 2008 correction
Taking profits doesn't mean close down a position.
TORONTO, ONTARIO - June 6, 2008 - Cash Minerals Ltd. (TSX-V:CHX) today announced that it has initiated a strategic review to reassess the economic potential of the Company's Division Mountain coal property, located approximately 90 km northwest of Whitehorse, Yukon Territory. The Division Mountain property contains a measured resource of 52.5 million tonnes of high volatile "B" bituminous thermal coal (refer to NI 43-101 report dated December 21, 2005).
"The aim of Cash Minerals' strategic repositioning plan is to assess all of the Company's projects to determine which assets would provide a greater return to shareholders," commented Greg Duras, President and CEO of Cash Minerals Ltd. "Given the renewed interest in coal over the past few quarters, management has decided to review the economic potential of Cash Minerals' Division Mountain coal property. This will be the first step in our plan to maximize shareholder value."
Work on the Division Mountain property over the next quarter will include: upgrading the feasibility study to determine the potential for export coal, given current coal prices; and revising the feasibility study for the potential of a Division Mountain coal mine to provide feedstock to a proposed mine-mouth power station (to be located adjacent to the property). An exploration program will also be designed to determine the potential for metallurgical coal on the property and to upgrade and expand the existing resource.
The management team is also evaluating coal projects outside the Yukon, in an effort to expand the Company's portfolio of coal assts. Cash Minerals has been in the process of identifying and evaluating opportunities to participate in additional coal properties. Cash Minerals is involved in discussions with various government officials to monetize their positions in coal assets and take advantage of the growing demand for energy-related resources. Cash Minerals has expressed an interest in purchasing a significant interest in various coal projects.
Division Mountain Property
The Division Mountain property is 100% owned by Cash Minerals and is comprised of five coal leases covering 7.764 square kilometres and 30 territorial coal exploration licenses covering 3,600 square kilometres.
An independent feasibility study on a potential Division Mountain coal mine was completed in 2006. The mine feasibility study was completed by Norwest Corporation, a North American coal and energy engineering consultancy firm based in Salt Lake City, Utah. Cash Minerals intends to engage Norwest to update the feasibility study to reflect current improved market conditions and opportunities.
In conjunction with the Division Mountain mine feasibility study, Cash Minerals also commissioned an independent preliminary pre-feasibility study on the potential mine-mouth coal-fired electricity generating plant located adjacent to the mine. The study estimates an operating cost of 12.2 cents per kWh (2006 cost basis). This cost compares with Yukon Energy's 2005 Residential rate of 13.74 cents per kWh and 2005 General Service rate of 15.39 cents per kWh, which were reported in Yukon Energy's 2005 Annual Report.
The same performance is looking like a possibilty for Cash Minerals (Toronto - CHX) finance.google.com/fin...