While crude oil prices has been spasming (trying to find a direction) the last few days after hitting an all time high last week, coal continues to march ahead. globalCOAL’s NEWC weekly index reports coal trading at $138.35/tonne for the week of May 23 versus $134.85 the week before. The record high was $139.16 back on February 15th.
Problems on both the supply and demand sides continue to support higher coal prices:
- China continues to be forced to close power plants due to shortage of coal. Current coal supplies will only last for 3.1 days of power generation which is much lower than the 7 day minimum supply usually needed.
- Export train from Colombia’s Cerrejon mine was derailed on its way to Puerto Bolivar due to terrorist attacks.
- Bottlenecks at Australia’s Newcastle port has caused coal exports to decline by 18%. Furthermore, queue of coal ships waiting to carry the coal has increased, tying up coal ships for 13.5 days while waiting to load coal versus the 0.38 days average loading time for general cargo ships.
These supply and demand problems should continue to act as a driver for coal and all of coal’s supporting infrastructure. Even as coal stocks are at or near all-time highs, coal miners like Arch Coal (ACI), Patriot Coal (PCX), and Peabody Energy (BTU) can still be bought on dips. Likewise, methods of transporting coal such as the rails, barges like Kirby (KEX), and dry shippers should still have momentum. Finally, coal mining equipment makers Joy Global (JOYG) and Bucyrus (BUCY) has products that are in high demand to continue to open new mines and bring out coal.
No need to chase these. This is just to highlight how real the problems with coal and power generation is. The bottlenecks at ports like Newcastle won’t be fixed overnight, or even over a year, as whole port cities might need to be constructed and railways built in order to get all the coal out. In China, even with the earthquake temporarily knocking out several provinces and thus their energy use, China is still 4 days short of coal. For a country that big, it will take a lot of coal just to bring coal supplies back to that 7 day minimum (not even a slight surplus for rainy days). Meanwhile, summer is approaching and U.S. utilities will be fighting the foreign buyers as U.S. utilities try to keep their requirements of coal from being exported.
**Disclosure: I own shares of PCX and BUCY as of this post**