Robert D.'s  Instablog

While the United States has adopted an anti-coal policy due to its polluting nature, China has not held back in expanding its coal power dependence. Even though China would like to have 15% of its energy source be from renewable energy, in order to do so, it must protect itself against the shortcomings of renewable energy.

As reported by several sources, China coal imports keep rising. According to Wang Xianzheng, chairman of the China National Coal Association, China’s coal output and sales respectively gained 8.9 percent and 2.23 percent year on year in the January to July period. In addition, China’s domestic coal inventory is likely to fall in the next three to four months due to growing coal demand and tight supply

Even though coal is not normally exported from US to China (Australia is much closer), times are changing. Companies are looking to find ways to capitalize on China's growth (and the rest of Asia), by exporting raw materials to developing countries.

During a recent conference call to discuss financial results Teck CEO Don Lindsay told analysts, "There's no question [coal] demand has picked up strongly. The issue is actually being able to fill that demand."

"We have not been able to meet the full demand at this stage," he said, adding that Teck is "not doing spot sales until we can produce more coal."

Lindsay noted that plans to build "very large steel mills" on the China coast "will have a very significant effect on seaborne met coal."
Source: Miniweb

Consol Energy has also exported coal to China. United States companies are beginning to see this as a new market opportunity.

When looking at stock prices in the coal sector, we can see there has been tremendous price appreciation in the past 6 months, when the market bottomed. The Market Vectors Coal ETF (KOL) clearly shows significant gains.




Likewise, shares of individual companies have quickly surged since hitting their lows. Nonetheless, due to expected economic rebound, an increase in metal demand, and over-all growth of emerging markets, we can expect continued growth in a resource that remains cost-effective.



One company in particular stands out, Patriot Coal, with a P/E of 4.50, the lowest in its industry. We have seen what the stock of companies like TCK can do when pessimism turns into optimism.



There are additional ways to jump into the coal wagon, which can pertain to investors depending on their risk appetite. For example, investors may choose to invest in high dividend payers like Alliance Resource Partners (ARLP), Natural Resource Partners (NRP), and Penn Virginia Resource Partners (PVR), yielding 8.2%, 10.5%, and 10.75% respectively. Additionally, there are companies listed in the OTC and Pinksheets which may include Chinese companies listed in the US, as well as smaller companies. Companies like Puda Coal were recently uplisted from the OTC and saw a quick price surge.

Whatever your risk appetite may be, coal should be part of your energy portfolio, as our global coal dependence is far from over.

Disclosure: Long PCX (as of 4/1/09)