A Bottom in Coal

Written By Christian DeHaemer

Posted March 27, 2014

Never has an industry been as hated as coal.

Obama has been so hard on the industry that he turned West Virginia Republican. Wall Street sold companies like Peabody Energy (NYSE: BTU) down from $84 to $15.

Recently, us humble editors at Energy and Capital wrote the well-reviewed book Energy Investing for Dummies. I personally wrote the chapters on coal and nuclear power. Here is an excerpt:

“Coal is the main fuel used in electricity production in the world. Over the past 30 years, the amount of electricity produced from coal globally has more than tripled. Coal is the second most heavily used hydrocarbon overall, after oil, but it’s gaining fast. The International Energy Agency (IEA) predicts that coal will surpass oil as the world’s most used fuel source within 10 years.

Coal consumption growth is mainly due to the relatively low cost of building and running coal-fired power plants and the strong demand from emerging markets countries like China and India for electricity to support their quickly growing infrastructures and populations. There are 1.3 billion people currently without electricity in the world, and they want refrigerators and TVs just like everyone else.

At current rates, coal consumption will rise to 4.32 billion tonnes of oil equivalent versus 4.4 billion tonnes of oil per year worldwide by 2017.

There is a true growth trend in coal right now, and lucky for you, due to the Obama administration’s crackdown on pollution, it is one of the most undervalued commodities in the world. But it won’t be that way for long. There is a very solid case to be made that coal will be one of the best-performing assets over the next ten years.”

It seems I am not alone in my assessment — there are a few of us shouting in the wilderness. Here is a sample of recent headlines:

  • “Ex-Noble Trader Banga Ventures Into Coal Calling Bottom” — Bloomberg
  • “Is Coal about to heat up and breakout?” — Wall Street Sector Selector
  • “The New Future for American Coal: Export It” — The Wall Street Journal

Don’t get me wrong: coal is still one of the most hated investments out there. Those three bullish headlines were the only ones that popped up in a quick search, and they were buried among the tree-hugging, anti-coal screamers who must still type on Underwoods and heat their offices using peat.

We Are All Contrarians Now

This is good news for us contrarian investors who like to buy stocks everyone else has already sold. “Buy fear and sell greed” is my motto.

I recently put my money where my mouth is and made 502% for my readers in Plug Power (NASDAQ: PLUG). Sure, it’s a market darling today, but it was a laughingstock when I put out my buy recommendation at $1.70.


Here’s what the WSJ said about coal recently:

“As environmental restrictions and abundant natural gas reduce coal consumption at home, exports have become more important for U.S. mining companies. U.S. coal shipments outside the country in 2014 are expected to surpass 100 million tons for the third year, a record string. A high level of exports helps keep the domestic supply in line with demand and helps prevent U.S. prices from tanking.”

Companies that export coal, like CONSOL Energy Inc. (NYSE: CNX), have been quietly moving higher.

CONSOL Energy exports from Baltimore on the East Coast and sells its coal to steelmakers in Brazil and South Korea.

Putin’s Gas

That said, it should get a boost from the EU’s standoff with Russia. Russia accounted for 30% of Europe’s natural gas imports.

As you know, natural gas and coal can both be used for heating. The low cost of natural gas in the U.S., coupled with Obama’s war on coal, has lead to the current low price of U.S. coal.

High natural gas prices, which will soon descend on Europe, will have the opposite effect.

CONSOL Energy has the added bonus of owning the Baltimore coal export terminal, which can move 15 million tons, and gets paid when other coal producers use it.

I’m not saying coal will launch in the next few months. But it is starting to percolate, and you should put it on your radar.

All the best,

Christian DeHaemer Signature

Christian DeHaemer

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Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

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