Don't Miss Your Chance to Profit from the Best Coal Stocks

By Kerri Shannon

U.S. and European debt concerns have triggered some dismal market performances - but there is still one energy sector that's moving up.

And that's coal.

The Dow Jones U.S. Coal Index, which tracks 69 energy and coal-related companies, has climbed 60% in the past year and 13% in the past month.

So what's the key motivating factor moving the world's best coal stocks higher?

Simply put, it's a combination of shrinking supplies and rising demand.

Indeed, Coal prices are up more than 20% in the past year and many experts say increasing consumption from emerging economies like China - the world's biggest coal consumer - and India will push prices even higher.

China's rapid growth has been the main driver behind an average 3.8% annual increase in global coal demand since 2000. In fact, the country accounted for about half of the world's coal consumption in 2009. And a China Energy Research Institute report recently estimated that country's economic growth, urbanization, and rising middle class would increase coal demand by 700 million tons to 1 billion tons by 2020.

India's coal imports are expected to double to 100 million tons by 2012. And Japan also will boost demand attempts to rebound from the tragic March 11 earthquake and tsunami.

Growing demand isn't the only reason to believe prices will soar, either. Because as worldwide demand surges, global coal supplies are rapidly falling. 

China's growing demand could reduce its coal reserves' lifetime from 62 years to about 33 years by 2020. And if coal demand increases yearly along with Chinese economic growth, it could deplete reserves to just a 19-year supply in that time.

Meanwhile, other countries' estimated coal reserves are shrinking as geologists uncover more limitations on coal extraction - like quality of coal and depth of reserves. And harsh weather also has tightened supplies. Floods in Australia this year trimmed the country's coal output by 15%, and similar inclement conditions in big coal-producing nations like Indonesia and South Africa have cut estimated output.

The combination of increased demand and limited supply means coal prices will continue to soar. And this bullish outlook is giving a boost to coal-related companies like Peabody Energy Corp. (NYSE: BTU), the world's largest private-sector coal producer.

Peabody this week reported a 38% increase in second-quarter profit and raised its full-year earnings outlook to $4.20 to $4.60 a share from $3.50 to $4.50.

The coming price increase also has fueled a flurry of mergers and acquisitions in the sector. Peabody earlier this month partnered with steelmaker ArcelorMittal (NYSE: MT) to offer $5.1 billion for Australia's Macarthur Coal Ltd. Macarthur specializes in pulverized coal used by steel producers, and would make Peabody a go-to coal supplier for heavy industries.

Naturally, Peabody isn't the only company profiting from coal's price rise.

In fact, Money Morning Contributing Writer Dr. Kent Moors on Monday alerted readers to another red-hot coal investment that's still flying low under the radar. But to get information on that pick, and a more thorough analysis of the best coal stocks money can buy, you'll have to sign up for Dr. Moors' newsletter - the Energy Inner Circle.

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Copper, iron ore and coal to lead commodities

by Commodity Online

Copper, iron ore and coal is expected to create a bullish undertone for commodities thanks to insatiable appetite for commodities from developing nations such as India and China.

The rising demand and the supply demand mismatch turn copper into a top contender for leading the commodities pack up in the coming years. The red metal already faces a market deficit and it is expected to widen further when economies emerge out of their protective cocoons as recovery gathers momentum.

Iron ore also has claimed a position among the favourites following the rising demand for steel and the new pricing structure the market has now adopted. The benefit to the energy sector is obvious enough to be over looked, and coal is a major source of it. Countries like China, which relies on coal for more than 70 percent of its energy needs, are sure to bolster prices of coal in the coming days.

Standard Chartered Plc predicts gold, copper, coal and iron ore to be in the forefront of the commodities price rally in the few years to come.

Goldman Sachs also sees raw materials price to climb in the coming days, along with Deutsche Bank and Barclay’s capital, all of which advocate the strength in commodities to stick.

However, rising commodities prices punt up global food prices adding to the inflationary situation, which lead countries such as China, Brazil and India etc to hike interest rates.

The Standard & Poor’s GSCI 24 commodities index beat stocks, bonds and currencies in the last five months, which is the longest winning streak in last 14 years, reports showed. But the index has been on the downside of the late due to the subsequent fall back of commodities market.

The development expectations from India and China are sure to dominate the future path for commodities. India is expected raise the demand for metals by 80 percent in the coming years to complement her investments in infrastructure. Coal demand, on the other hand, is seen at 2 billion tonnes in the coming years, reports showed.

Nevertheless, more immediate concerns dog the commodities markets currently. Slowing growth in the US, debt troubles in the European Union and rising inflation and the apparent real estate bubble in China, all of which present the market with enough and more hurdles.

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Win with Chinese Coal Stocks

by Rudy Martin

International coal prices hit $124 per ton last week, the highest level in five months, largely due to strong demand from reconstruction projects in Japan. But coal supply is also tight, because of flooding in Australia, Indonesia, South Africa and Colombia.

Perhaps no country is more affected by this development than China, which experienced 9.7 percent GDP growth during the first quarter. According to the country’s National Energy Association, China’s electricity consumption will rise 12 percent this year, which could lead to power shortages. In response, the government is putting restrictions in place as the peak season approaches. Big industrial provinces are already scaling back power consumption plans. These reductions are likely to hinder aluminum, cement, zinc and steel output.

In addition, China’s National Development and Reform Commission called a meeting this week of domestic coal suppliers to ensure stable supplies.

Coal powers the Chinese economy, and China is by far the world’s largest consumer. Coal accounted for 71 percent of China’s energy in 2008 — more than three times the United States’ share. The Electricity Council estimates that the country’s coal demand will reach 1.92 billion tons in 2011, up nearly 10 percent from last year.

Demand for electricity is exploding due to China’s rapid urbanization and rising middle class. Emerging wealth means powering new refrigerators, air conditioners and other appliances in homes.

Luckily for China, it sits atop the third-largest amount of recoverable coal reserves in the world behind the U.S. and Russia. The country more than doubled its coal production from 1999 to 2009. Despite this increase, production couldn’t keep up and the country became a net importer of coal two years ago.

The Chinese government made it clear that it wants to wean the country’s power grid from coal. But that’s proven to be a difficult task. Hydroelectric, nuclear and other renewable fuels combined make up only 10 percent of total power. And the EIA forecasts that China’s coal consumption will nearly double over the next 25 years, as the economy continues to grow and electricity demand remains strong.

With coal’s short- and long-term status atop China’s energy mix intact, I think China’s domestic coal producers stand to benefit. Subscribers to my Emerging Market Winners newsletter have already made 23 percent on Yanzhou Coal Mining, ticker symbol YZC. That’s one way to light up the portfolio performance meter. 

Watch the video.

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Coal Use Shine’s Light on China's Economic Growth

By: Frank_Holmes

International coal prices hit $124 per ton this week, the highest levels in five months, as strong demand from reconstruction projects in Japan and reduced supply from flood-ravaged Australia has made coal supply tight. The floods in Queensland, Australia cut the country’s output of coal by 15 percent and other big coal producers such as Indonesia, South Africa and Colombia are experiencing similar production cuts due to floods of their own.

At the end of March 31, coal prices were 33 percent higher than a year ago and earlier this month, mining giant Xstrata inked a one-year deal with a Japanese utility at $130 per ton, effectively setting a floor under coal prices in the near-term. That’s up from $98 per ton the company made in a similar deal a year ago.

Perhaps no country is more affected by this development than China. With its economy powering ahead with 9.7 percent GDP growth during the first quarter, Chinese electricity use was up 13.4 percent on a year-over-year basis over the same time period, according to China’s National Energy Association (NEA). China’s overall electricity consumption is now expected to rise 12 percent this year, up from the 9 percent growth the NEA forecasted in January.

China’s Electricity Council said the country may face power shortages of 30 million kilowatts during the summer so the government has moved quickly to put restrictions in place as the peak season approaches. Big industrial provinces such as Guangdong and Zhejiang are already scaling back power consumption. These reductions are likely to hinder aluminum, cement, zinc and steel output, according to Macquarie Commodities Research. 

In addition, the National Development and Reform Commission (NRDC) called a meeting this week of domestic coal suppliers such as Shenhua Energy and China Coal Energy to ensure stable supplies, the China Daily said.

Coal powers the Chinese economy. The country is the world’s largest consumer, gobbling up nearly half of the world’s coal consumption in 2009. Coal accounted for 71 percent of China’s energy in 2008—more than three times the United States’ share. The Electricity Council estimates that the country’s coal demand will reach 1.92 billion tons in 2011, up nearly 10 percent from 2010.

China hasn’t always been such a glutton for coal. In fact, coal consumption actually declined from 1996 to 2000. However, consumption has shot up 180 percent since then and China accounted for 80 percent of demand growth between 1990 and 2010, according to BP.

This is because demand for electricity exploded over that time. China’s rapid urbanization and rising middle class has led to an exponential number of new refrigerators, air conditioners and other appliances in homes.

Despite the rise in incomes and increased consumer demand, China’s electric power consumption remains relatively low. You can see from the chart on the right that the U.S. consumes roughly four times the amount of electricity per capita than China. The world’s second-largest economy even trails Greece, Poland and Hungary.

Luckily for China, it sits atop the third-largest amount of recoverable coal reserves in the world behind the U.S. and Russia. The country ramped up its coal production from 645.9 million tons of oil equivalent in 1999 to 1,552.9 million tons in 2009. Despite this increase, production couldn’t keep up and the country became a net importer of coal in 2009. Production jumped over 15 percent during 2010 but the country was still forced to increase coal imports by 42 percent in order to meet demand, according to the China Daily.

There are two types of coal. Thermal coal is burned in furnaces to create electricity and metallurgical coal, also called coking coal, is used to create concrete and steel. China’s coal reserves are light on the latter, which has required China to rely on countries such as Australia, Indonesia and Russia for supply.

These imports are playing a vital role in China’s infrastructure boom. The U.S. Energy Information Administration (EIA) estimates that Australia’s total exports to Asia, which also includes Japan and India, will increase 64 percent to 394 million tons by 2035. This accounts for 94 percent of Australia’s total exports.

Coal exports from Indonesia, Asia’s second-largest source of coal, are expected to rise 26 percent over the same time period, according to the EIA. In 2009, China signed a 25-year, $6 billion loan-for-coal agreement with Russia that will supply the country with 15-20 million tons of coal.

The Chinese government made it clear that it wants to wean the country’s power grid from coal. That’s proven to be a difficult task. China’s 12th Five Year Plan calls for big improvements in energy efficiency and the development of additional sources including natural gas.

Massive projects such as the Three Gorges Dam have sought to increase capacity of alternatives, but hydroelectric, nuclear and other renewables combined make up only 10 percent of total power. In addition, low water levels due to a drought in Southern China have reduced current hydroelectric capacity.

The ongoing disaster at the Fukushima nuclear plant in Japan has delayed but not squashed China’s nuclear ambitions. The country has plans to build more than two dozen plants by 2020, accounting for 40 percent of new nuclear facilities around the globe.

Only time will tell if the effort will be successful. The EIA forecasts that China’s power generation from coal will increase by 2035 but will only account for 62 percent of total power generation at that time. However, the EIA says that absolute coal consumption will nearly double as the economy continues to grow and electricity demand remains strong.

With coal’s short- and long-term status atop China’s energy mix intact, we think some domestic coal producers stand to benefit. To participate, we’ve taken positions in several coal producers including Shenhua Energy and Yanzhou Coal which we believe offer tremendous potential for the China Region Fund (USCOX).

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Coal prices may climb on Japan crisis

by Commodity Online

Global coal prices are likely to advance further if power plants in Japan remained closed for long time.

Analysts said Japan is the world’s largest coal importer and if repair works at its nuclear reactors become long term, competition to buy steaming coal will heighten, which is projected to raise global coal prices.

Japan is estimated to have lost 9,700 megawatts of nuclear and 10,831 MW of thermal power following the devastating quake and tsunami, putting the onus on other plants to fill the gap.

Meanwhile, South Korea, the world's third-largest coal buyer said its economy would have no short-term impact on its coal supply as utilities own 20-day consumable coal in their inventories, or about 4 million tones combined.

It noted local coal demand is estimated at about 200,000 tons per day.

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The Commodities Boom of 2011: Coal Will Be the New Gold

By: Money_Morning

Martin Hutchinson writes: The run-up in commodities prices has been a long one. And it shows no signs of abating.

As a Money Morning reader, you know that we predicted this run-up. Back in October 2007, for instance, we told readers to buy gold - when it was trading at $770 an ounce. Those of you who followed our advice have done quite well. 

But now it's time to make a new prediction.

The run-up in commodities prices isn't going to end. But it is going to change.

You see, commodities are going to break into two distinct groups: Traditional inflation hedges, such as gold, and big industrial commodities, such as coal.

Going forward, the industrial path will be the one that investors will want to travel for maximum profit. Here's the No. 1 way to play what we're calling "the commodities boom of 2011."

The Lowdown on the Commodities Run-Up
With commodities such as silver and gold, the prices are based on speculative demand. During the current run-up, loose global monetary conditions and the fear of inflation have served as the catalyst for record prices. For the last two years, governments around the world have used monetary policy as a tool to prop up their economies after the financial crash. That has pushed up gold and silver prices: The increase in the yellow metal has been moderate, albeit steady, while silver has doubled in the last 18 months.

However, interest rates are now rising in many countries, as central banks work to head off inflationary pressures. In both Britain and the Eurozone, interest-rate increases are quite close - in Britain, where inflation has already appeared there at the 4% - 5% level, and in the Eurozone, because the managers of the European Central Bank (ECB) are monetarily quite conservative.

It is already fairly unlikely that U.S. Federal Reserve Chairman Ben S. Bernanke will succeed in imposing another period of "quantitative easing" - involving large-scale purchases of U.S. Treasury bonds - after the current "QE" program expires in June.

By the fourth quarter, inflation stemming from the world's rising commodity prices may penetrate the notoriously insensitive price reports from the U.S. Bureau of Labor Statistics (BLS). If that happens, Bernanke & Co. may be forced to start increasing interest rates by the end of this year - although the Fed chairman will no doubt do his best to delay and limit the process, as he and predecessor Alan Greenspan did from 2004 - 06.

With monetary policy gradually getting tighter - and trillions of fewer dollars in liquidity sloshing around the global economy - the upward pressure on gold and silver prices will decrease, although those won't disappear immediately. 

At the other end of the commodities spectrum - in food commodities and bulky commodities such as iron ore - the trajectory will be different. With this group of commodities, the primary upward catalyst won't be global monetary policy; it will be the rapid growth in emerging-market economies. 

Emerging-market consumers, whose incomes are rapidly growing, are nevertheless poorer than Western consumers and do not have the basic goods that are associated with modern affluence. Hence, those newly minted middle-class consumers are now buying modern apartments, automobiles, kitchen appliances and a host of other items that, unlike electronic gadgetry, require large amounts of such basic materials as iron and steel to manufacture.

Since demand for basic industrial commodities is driven by emerging-market consumers - and not by monetary policy - there is relatively little speculative activity in coal or iron ore. Instead, the demand is industrial in nature.

This is an important distinction for prospective investors. You see, price increases driven by industrial demand are likely to persist longer than those that were speculative in nature, particularly since it's not at all likely that modest interest-rate increases will kill off the growth that we're seeing in emerging-market economies.

Keep an Eye on Supply
We should not, of course, neglect the supply side. For some commodities - most notably oil - a number of new supply sources have arisen over the last five years. For instance, Canadian tar sands now form a more-substantial part of the U.S. oil picture.

And with oil-shale prices currently near $100 per barrel, this is now a viable source of additional supply. Colorado has a big supply. Outside the United States, the Tupi oil fields in Brazil are due to come on-stream in 2012, while Colombian production has been increasing at a rapid rate and is expected to ramp up further in coming years. 

Moreover, the speculative zoom that oil prices experienced in the summer of 2008 showed us that - at prices above $100 per barrel - demand becomes quite sensitive to oil prices, partly because very high oil prices tend to deflate non-oil-producing economies. Thus, the upward pressure on oil prices is likely to be moderate.

Conversely, copper is particularly likely to continue rising in price because new sources of supply take a very long time to come on stream, and many mining projects were severely delayed by the 2008-09 global downturn.

In addition, speculative demand by hedge funds and through the exchange-traded-funds (ETF) mechanism is withdrawing physical copper from the market, a much more serious problem than with gold, because the world does not have large stocks of unused copper.

Thus, copper - which is "in the middle," between the speculative and industrial commodities - is likely to continue rising in price, until major new sources of supply come on stream in 2014-15.

That brings us to coal, which is shaping up to be the best way to profit from the commodities boom of 2011.

The No. 1 Profit Play
Coal is at the far industrial end of the spectrum: In the past, supplies have been plentiful, and speculative demand negligible.

Both China and India are heavily dependent on coal for electric power. And both countries have increasingly resorted to imports as demand grows. Furthermore, coal mining has not been particularly profitable in recent years, and developing new coal mines in advanced countries is a permitting nightmare because of the environmentalists.

There is thus much less capital in the coal industry than there is in the oil sector, and much less ability to ramp up production to meet soaring demand.

So where does that leave us? Coal mines - not gold mines - will be the key to investor profits in the commodities boom of 2011.

As an investor, you could do a lot worse than Cliffs Natural Resources Inc. (NYSE: CLF). Cliffs, working through several Australian joint ventures, is a major coal supplier to China. And through its acquisition of Canada's Consolidated Thompson Iron Mines Ltd. (TSE: CLM), a $5 billion deal announced just last month, Cliffs will become the largest-iron-ore producer in North America.

Cliffs has had a very good run, with its stock price having more than doubled in the past 18 months, but isn't overvalued. The Consolidated deal will broaden its reach. And it remains very strategically positioned, indeed.

Action to Take: The commodities boom is destined to continue. But it's going to take a different form here in the New Year - which is why we're calling it "the commodities boom of 2011."

The investment leaders up to this point - chiefly gold and silver - are going to give way to industrial commodities: Copper, iron ore and others. But the big star could be coal. And the No. 1 way to play it is Cliffs Natural Resources Inc. (NYSE: CLF).

Cliffs is a major coal supplier to China. And through its acquisition of Canada's Consolidated Thompson Iron Mines Ltd. (TSE: CLM), a $5 billion deal announced just last month, Cliffs will become the largest-iron-ore producer in North America.

Cliffs isn't overvalued - despite its stock having had a good run. The Consolidated deal will broaden its reach. And it remains very strategically positioned, indeed.

[Editor's Note: Money Morning Contributing Editor Martin Hutchinson doesn't just have a knack for picking out profit plays in the energy industry. 

You see, he's a numbers man. And he successfully applied his mathematical knowledge - as well as his financial expertise - to his 37 years as an international banker. 

Now Hutchinson is using those same skills to help investors multiply their wealth by uncovering outstanding quality stocks with consistent high cash payouts. Just click here to read a report on how you too can pull enormous amounts of money out of the markets, or subscribe to his advisory service Permanent Wealth Investor.]

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What U.S. Energy Policy Needs: Less Coal, More Uranium

By JOSEPH LAZZARO

Looking back now, it's easy to see that the biggest energy policy mistake the U.S. made in the 20th century was the failure to wean the country off oil -- particularly imported oil -- as a transportation fuel.

As the recent popular uprising in Egypt and other protests across the Middle East have reminded Americans, any disruption in the system that sends roughly 2 million barrels of crude oil a day from the Middle East to the U.S. would send gasoline prices soaring. Think $5 a gallon, and that's assuming there's any gas at all in your area.

But the nation's second-biggest energy policy blunder was its failure to fully deploy nuclear technology for electric power generation in the 1980s and 1990s. No new nuclear plants have been built in the U.S. in more than 30 years. Of the 104 nuclear plants currently operating domestically, all began service before 1980.

America's shift away from nuclear power stemmed, in part, from an excessive and -- in retrospect -- imprudent overreaction to the Three Mile Island nuclear power plant accident in 1979. It was a terrifying event, but it caused no deaths or injuries. Much of the rest of the blame for our long nuclear drought can be laid at the feet of an environmental movement that gained momentum and a stronger lobbying voice in the 1970s.

Today, with the world under pressure to reduce its emissions of climate-warming CO ₂ -- the U.S. is reviving its pursuit of nuclear energy, although a segment of the environmental lobby remains opposed.

Decades Behind

To say the U.S. has a lot of catching up to do in the nuclear power race doesn't come close to the reality. Consider these statistics, based on Nuclear Energy Agency data: France gets 77% of its electricity from nuclear plants; Sweden, 42%; Switzerland, 39%; South Korea, 37%; and Finland, 30%. The U.S.? A mere 20%.

Another reason the country didn't fully deploy nuclear power technology late last century related to concerns about the radioactive waste it produces. Opponents have frequently cited waste processing as a barrier to nuclear power, but France has had in place an effective nuclear reprocessing program at COGEMA La Hague and Tricastin for decades.

Nuclear power never went out of style in France, which is why that nation is decades ahead of the U.S. in energy self-sufficiency, The New York Times reported. France launched an ambitious nuclear power program decades ago because it lacks both oil and abundant coal.

If the U.S. chooses to not reprocess nuclear waste, Nevada's Yucca Mountain (or some other storage facility at an out-of-the-way site to be named later) could be pressed into use. New York Times columnist Thomas Friedman, a proponent of green and renewable energy, has often noted the odd U.S. stance regarding nuclear power compared to our democratic cousins in France. The U.S. is too afraid to store nuclear waste in the middle of the desert at Yucca Mountain while French mayors campaign to have nuclear reactors built in their towns to create jobs.

"Scalable" Nuclear Plants

One out-of-date argument against nuclear power concerns its cost, but new, refined nuclear plants based on simple modular designs have eliminated that concern, The Economist magazine reported. Further, modularity allows plant builders to incrementally add power generation if electricity demand increases. Modularity, with its smaller initial construction costs, also shortens the break-even timetable for utilities.
A final anti-nuclear argument points to natural gas , as well as wind, solar power and other renewable energy sources, as better alternatives to coal. Provided the price of natural gas remains competitive, this abundant, cleaner fossil fuel will continue to displace dirty coal to power our electric plants. However, while the percent of U.S. electricity supplied by wind and solar power will continue to increase in the decade ahead, barring a technological breakthrough, neither will be able to supply enough power to displace dirty coal and provide a bridge to potentially cleaner, more-advanced energy technologies 20 to 30 years from now.

Nuclear power could be that bridge, but it will to take a national commitment to achieve it. The U.S. now has 104 licensed nuclear plants operating, or about one for every 2.9 million people. In contrast, France has 58 nuclear plants, or about one for every 1.1 million citizens.

Of the dozen or so new nuclear power plants currently under construction in the U.S., perhaps four to eight may be approved and come on-line between 2016 and 2018, The Economist reported. Globally, about 55 nuclear plants are under construction, including more than 20 in China.

Adding just eight new U.S. nuclear plants by 2018 is grossly insufficient, either to reduce carbon emissions or to meet the nation's growing demand for electricity. The U.K., with one-fifth the population of the U.S., has announced plans to fast-track the construction of 10 plants.

How Can the U.S. Stay Left Out?

The Obama administration, which in February 2010 announced loan guarantees for two new nuclear reactors in Georgia Power's Vogtle Nuclear Power Plant complex, supports the expansion of nuclear power, and President Obama has called for a bipartisan energy and climate bill to create incentives that will make clean energy profitable.

However, to substantially increase the number of plants -- say, by about 20 before 2020 -- a comprehensive loan guarantee program is needed. But a new federal program of that size appears to be a long shot in today's austerity-oriented Congress, where program cutbacks and belt-tightening are the priority.

Still, it seems almost implausible -- indeed, irrational -- that technology and innovation powerhouse U.S. would pioneer a revolutionary technology like nuclear power and then walk away from it when it's refined, leaving other nations to apply it to their social, economic and environmental benefit.

France, China, and the U.K., among others, recognize that nuclear power represents a win-win on climate change and self-sufficiency grounds. It's time the U.S. realized it as well, and started making up for decades of lost time -- and energy.

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