At ports in Canada, Australia, Indonesia, Colombia and South Africa, ships are lining up to load coal for furnaces in China, which has evolved virtually overnight from a coal exporter to one of the world’s leading purchasers.
The United States now ships coal to China via Canada, but coal companies are scouting for new loading ports in Washington State. New mines are being planned for the Rockies and the Pacific Northwest. Indeed, some of the world’s more environmentally progressive regions are nascent epicenters of the new coal export trade, creating political tensions between business and environmental goals.
Traditionally, coal is burned near where it is mined — particularly so-called thermal or steaming coal, used for heat and electricity. But in the last few years, long-distance international coal exports have been surging because of China’s galloping economy, which now burns half of the six billion tons of coal used globally each year.
Vic Svec, senior vice president of Peabody Energy, the world’s largest private coal company, said it was “planning to send larger and larger amounts of coal” to China.
“Coal is the fastest-growing fuel in the world and will continue to be largely driven by the enormous appetite for energy in Asia,” he said.
The growth and shifts in coal exports to China are impressive, flowering even during the recession. Seaborne trade in thermal coal rose to about 690 million tons this year, up from 385 million in 2001.
The price rose to $60 from $40 a ton five years ago to a high of $200 in 2008. Coal delivered to southern China currently sells for $114 per ton.
Although it has plentiful domestic supplies, China imports coal because much of its own is low grade and contains impurities. Coal from the Powder River Basin of Montana and Wyoming tends to be low in sulfur, for example, allowing power plants to burn more without exceeding local pollution limits.
Another emerging customer is India, whose coal imports rose from 36 million tons in 2008 to 60 million tons in 2009, the last full year for which data is available.Read the rest here: NYT on Coal
Personally, I am a believer in coal and the ability to use coal in a "cleaner" state. read up on coal gasification and sequestration. Like it or not, The US produces an awful lot of coal and has some of the highest quality stuff - high BTU, low sulfer. Always look at the difference between thermal coal and met coal and who produces which (production of both helps partially mitigate the volatility in met coal prices).
In equities, I like the diversified miners (Vale, BHP, Rio) and think that there continues to be upside in the names. Peabody Massey and Arch are interesting, but the focus can cause volatility and while multiples on all miners are high, they are higher on coal focused (although I keep in mind that increased demand will also help jack go-forward earnings and lower forward multiples).
From a debt perspective, I like BHP, but worry about their big game hunting (where to now that POT went up in smoke? - Come on, that's humor!), leaning more towards RIO and Vale. Cliffs is another I like (more ore biased and also looking for an acquisition - hedgies blew apart the alpha deal). Also digging into Alcoa as there might be something there.
No preferred that I am aware of in the sector.
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