Coal Rally on China Demand Sparks $59 Estimates

Includes: ARCH, KOL, MEE
by: TraderMark

A lot of mixed message coming out of China on the commodity front... a potential excess of copper and steel, but lacking in coal. Of course with coking coal being one of the components that go into steel...hmm.

Via Bloomberg (emphasis author's):

  • A rally that has boosted coal prices 21 percent from their lows last year may have further to go as the coldest U.S. winter in nine years and China’s record imports increase demand and drain stockpiles. Prices will average $59.28 a ton this year, up 17 percent from $50.75 as of Feb. 19 on the New York Mercantile Exchange and 41 percent more than last year’s low in April, according to the median of 11 analyst estimates in a Bloomberg News survey.
  • China, the world’s biggest coal user, imported 16.4 million metric tons in December, a sixfold increase from a year earlier, customs data show.
  • Hedge funds have been buying energy producers, mining companies and airlines, a sign that managers from Louis Bacon to David Tepper are convinced the economy will accelerate. Duquesne Capital Management LLC, led by Stanley Druckenmiller, bought 6.2 percent of coal miner Massey Energy (NYSE:MEE), whose earnings are projected to double this year. Massey is the sixth-largest U.S. coal company.
  • The increased U.S. and Chinese consumption prompted Michael Dudas, an analyst at Jefferies & Co. in New York, to raise his 2010 price target for coal to $70 per ton, a figure he originally forecast for 2011. “The weather and better electricity generation have pushed stockpiles lower than people anticipated,” said Dudas, who has followed coal for a decade. “It’s really just accelerating that price.”
  • Utilities have 57 days worth of coal on hand, down from more than 70 days at the start of winter, according to Genscape Inc., a Louisville, Kentucky-based energy data provider.
  • The risk to forecasts for higher coal prices is a glut of natural gas in the U.S. and prospects for the economy to stumble as the Federal Reserve boosts interest rates for the first time since June 2006. “If the economy tanks again, that changes the outlook,” according to James Rollyson, senior coal analyst at Raymond James Financial Inc. in Houston. “The economy and particularly this year natural gas prices are the variables. Coal lost market share to natural gas because we averaged $4 gas for the year.”
  • The U.S. relies on coal for about half of its power generation, compared with about 20 percent for gas. Gas has to stay above $5 per million British thermal units to prevent it from being more attractive to utilities at the expense of coal. Natural gas for March delivery fell 12.8 cents, or 2.5 percent, to $5.044 per million Btu on Feb. 19. Rollyson estimates that through November coal lost about 40 million tons worth of demand to gas.