Jim Trippon's  Instablog

About: Chinese coal, Citigroup, Market Vectors Coal ETF (NYSE: KOL), China Stock Digest, China Stock, Chinese stock, Peabody Energy's (NYSE: BTU) , Australia Macarthur Coal,

If you invest in coal stocks or related exchange traded funds, you may be discouraged by the fact that Wall Street has a tendency to focus on the North American market as it pertains to coal companies. The reality is China is the new king on the coal block and coal companies with exposure to China make for compelling investment opportunities. Chinese coal demand is soaring and Citigroup says coking coal imports in China are set to reach a record 29 million tons as the country's own coal producers can't meet demand from steelmakers there.

Imports could actually come in higher than 29 million tons of coal production in China falls by more than 10%, a very real possibility. Coking coal is already in short supply and China's robust demand could crimp supplies even further. Earlier this month, Citigroup said coking coal prices could reach $300 in the second half of this year.

Much of China's coking coal lies far beneath the earth's surface in dangerous, hard-to-navigate gas-laden regions and production has peaked or is close to doing so in several of China's top coal-producing provinces, according to Bloomberg News. Should Chinese production of coking coal rise by just 5% this year, a shortage of 50 million tons may be seen, Citigroup said.

One way to play this trend is with the Market Vectors Coal ETF (NYSE: KOL), which has ample exposure to foreign coal producers as well as U.S. coal companies that are boosting their exports to China. A perfect example of how important China is to coal producers can be seen in Peabody Energy's (NYSE: BTU) attempted acquisition of Australia's Macarthur Coal, the world's largest maker of pulverized coal. Peabody has made three offers for Macarthur and is competing with two other suitors.