Many commodities sectors are coming under pressure as supply/demand ratios are out of whack following the slowdown in China and the massive mine build outs that many market participants constructed to satisfy what once appeared to be China's insatiable demand for coal, iron ore and a handful of other metals and minerals. We continue to seek out commodity plays with stable or rising prices and the companies themselves actually increasing production via exploration and development.
We noticed that Uranium Energy Corp. (UEC) saw shares rally $0.35 (13.73%) to close at $2.90/share yesterday. The shares closed at the high for the day, and traded 1.1 million shares - all on no news which was quite interesting especially when one looks at the entire uranium mining sector and the price action among the other plays. We believe that it is a bit too early to move into the uranium mining names at this juncture, but want to cherry pick some of the better names closer to the end of the year for our play on uranium in 2013. Looking ahead, UEC will probably be one of the names we take a serious look at.
Coal & Iron Ore
Shares in Alpha Natural Resources (ANR) fell to a new 52-week low, which is a new ALL-TIME low as well. This is something we talked about last week, the possibility of testing the lows again, and the lows were tested and broken. Alpha finished lower by $0,41 (6.90%) in yesterday's session closing at $5.53/share after a competitor announced that they would be shutting down a mine due to current market economics. The news sent the entire sector lower, but not everyone was setting new lows.
Walter Energy (WLT) was another coal play which was negatively impacted by the news and traded down to fresh 52-week lows as well. Shares closed at $30.73/share after losing $1.97 (6.02%) yesterday. Many discuss this as a takeover target, but we wonder who wants to be buying coal on a large scale right now when the market economics are so poor and continue to deteriorate. This is another reason why we do not like to, and in fact never do, purchase shares in companies on the hopes that the company is a buyout candidate.
Bridging the gap between the coal and iron ore sectors is Cliffs Natural Resources (CLF), which has the unfortunate distinction of being one of the market players with exposure to both sectors. Sadly it shows in the company's shares, which fell to a new 52-week low yesterday as there was bad news in both the coal and iron ore sectors. It appears to us that iron ore may be beginning down the same path that coal has been traveling over the past year or so. This will be a good play for when China reverses course and resumes their growth trajectory, but until then it is simply a stock which has the worst of both worlds as coal appears headed lower and so too does iron ore.
Vale (VALE) closed very near 52-week lows yesterday, falling in sympathy with the other iron ore names. As we discussed with Cliffs above, iron ore producers are beginning to come under serious pressure as the news surrounding Australia's Fortescue Metals really highlighted this negative trend yesterday. Australia has indicated that their economy shall be slowing in the months ahead due to the slowdown in China, but now we will have to watch and see how bad the slowdown really is.
We would recommend keeping a close eye on Australia as they are big exporters of iron ore and coal to China, and any negative events coming out of Australia will have an impact on worldwide markets.