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Coal stocks are deeply in the red on fears a weaker-than-assumed China may reduce its demand for...

Coal stocks are deeply in the red on fears a weaker-than-assumed China may reduce its demand for the power plant fuel and steelmaking ingredient. YZC -7.9%. LLEN -7.3%. WLT -7.1%. PUDA -6.5%. ACI -6.5%. BTU -5.5%. ANR -5.9%. MEE -5.4%. KOL -4.7%.
Comments (4)
  • A LOT of stocks "are deeply in the red on fears a weaker-than-assumed China may reduce its demand..." PERIOD.
    29 Jun 2010, 11:13 AM Reply Like
  • Maybe short term there might be a weaker than expected demand from China, but even mid-term, China demand will continue to grow rapidly.
    29 Jun 2010, 11:30 AM Reply Like
  • Today's move is providing a good level to enter into what will eventually be a profitable sector. Growth may slow, but it's not going away.
    29 Jun 2010, 12:37 PM Reply Like
  • The fundamentals of coal is attractive over the next 10 years.

     

    Power generation. Both China and India are essentially powered by coal, and although there is a push towards nuclear and other alternative sources of energy, coal is not getting replaced as the primary source of energy any time soon. During a normalized market, both China and India often experience power shortage due to lack of power generation capacity, lack of quality coal and general lack of coal supply. Power generated by coal is used to power homes, factories, subway systems, etc. To think that both China and India will not significantly increase their electric power consumption over the next decade is mind boggling.

     

    Steel. Metallurgical grade coal is used in steel making, which is driven by demand for building and construction, infrastructure development, automobiles, airplanes, oil rigs, etc. Demand for met coal is highly correlated with demand for iron ore. India, with its massive infrastructure development, and China, with its continued economic expansion, will require significant quantities of steel for the above purposes. Furthermore, infrastructure upgrading in more developed countries will continue to drive demand as well.

     

    Supply. Assuming zero growth, the world reserves can last for another 3-4 decades, with US, Russia, India, China and Australia accounting for ~75% of total reserves. China and India are net importers, while US, Russia and Australia are major exporters. Indonesia is another major exporter but its reserve life is less than 20 years.

     

    Nevertheless, all these coal companies may experience company specific issues, but the industry in general, should be attractive for investors who are willing to overlook short-term volatility (resource stocks are considered cyclical sectors that will benefit the most during boom times and suffer the most during bust times).
    29 Jun 2010, 01:13 PM Reply Like
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