coal shortage - very good article. Buy COAL!Supply levels of metallurgical coal nowhere near demand.
Editor’s note: This article first appeared as a Stockhouse blog entry: Coal: A Bet on a Slow Supply Side Response.
I've written about my Western Canadian Coal Corp. (TSX: T.WTN) purchases, and I've posted a lot of information about coal and in particular met coal (metallurgical coal), but I haven't ever dedicated a post describing the reason behind my bullishness on coal.
Met coal
First, the distinction needs to be made between metallurgical coal (which WTN produces) and lower value coals. While there is plenty of coal in the world, there is a good deal less met coal. Global coal production is 5.8Bt, while metallurgical coal production is 745Mt, of which only around 225Mt is for export.
Fording Canadian Coal (TSX: T.FRD.UN) calls hard coal a scarce resource. In one of their investor presentations they point out that only eight regions in the world have substantial coal deposits of suitable quality for coal. Massey Energy (NYSE: MEE) described the “scarcity of met quality reserves” on their recent Q1 conference call. Arch Coal (NYSE: ACI) pointed out in their conference call that “everyone is challenged with met coal reserves.”
Yet there has been tremendous new demand for coal from China, Brazil and India. I have made my arguments enough times on this blog that it goes without saying that I do not see this demand letting up anytime soon.
Has the easy supply been used up?
Up until now, a good deal of the demand for coal has been met by supply increases in Indonesia.
Yet Indonesia production appears to be increasing at a slower rate. NPC recently pointed out that Indonesia's coal reserves are "being depleted at an alarming rate." Mineweb notes that "after years of solid production, Indonesia's output growth is set to halve largely on a dearth of investments in the last decade...Top five Indonesian producers -- Bumi, Banpu, PT Adaro, PT Kideco and PT Berau -- which account for nearly 75 percent of the country's total coal output, have forecast total production from the five miners to rise just 7.5 million tonnes to 155 million tonnes in 2008, half the range of 2007's increase."
-------------------------------------------------------------
there is more of the article on stockhouse blog. I can't seem to post the entire article