Customer Service 1 (888) 261-2693
Advanced Search

Commodity Investor Q&A

By Matt Badiali, editor, S&A Resource Report
Wednesday, July 15, 2009

 

Q: I have been amazed that for the past six months, coal stocks have been trending up. Why? – J.B.
 
A: In the short term, the coal producers will roll with the economy. That's what we saw from March to June. The coal miners' stocks reflected the same forces that pushed oil prices up: A recovering economy needs energy.
 
However, the coal industry's future looks a lot like the Titanic's on the afternoon of April 14, 1912.
 
Coal Miners are Rolling Over
 
That trend seems to be ending, as you can see in the chart of the Market Vectors Coal ETF, which tracks 34 U.S. and foreign coal miners.
 
From January to March this year, coal production fell to its lowest point since 2004. It's now 15% below last October. Prices are stable except for Appalachian coals, which are up between 6% and 15% since the end of May.
 
At the same time, stockpiles of the black mineral are now the highest they've been in six years. Many coal consumers are stuck in long-term contracts, so they must take delivery of coal. Electricity generators, which consume about 93% of the coal supply, are swimming in the stuff. Stockpiled coal at electricity generators is up 22% over the last year and 93% over the last four years.
 
Industrial demand accounts for another 5% of the coal supply. It's used mainly in making concrete and paper. Things are looking bleak for both of those industries, with building at a near halt and newspapers going broke left and right.
 
Add that to the looming carbon cap and trade legislation, which will effectively raise the cost of coal to end-users, and you have an industry ripe for a major correction.
 
Q&A Update: In the June 24 Commodity Q&A, I told you crude oil's fundamentals were out of whack.
 
The U.S. consumes about 25% of the world's oil supply, so a glut here is going to affect worldwide oil markets. With all that extra oil sitting around, we either need a massive increase consumption OR falling oil prices. Since the economy is a train wreck, I don't see sudden rabid oil consumption on the horizon.
 
At that time, traders were excited about crude's rally. But like slack in a short leash, oil's fundamentals finally caught up to it...
 
Oil Prices Down 15% This Month
 
Crude prices fell 15% in July. It looks like the economic reality has finally broken through to the crude oil market.
 
Last month, I told "gung-ho" oil traders to watch their stops and get ready to bail. I hope they followed my advice. Now, I think the best bet is to wait for the new trend to emerge before jumping in on the short or long side.
 
Good investing,
 
Matt




In The Daily Crux
Market Notes
Burger King hits 52-week low... refuses to offer $1 cheeseburger.
 
West Coast airlines Alaska and Hawaiian at three-month highs... majors approach three-month lows.
 
Data storage firms make new highs... STEC up 540% this year.
 
Earnings today... Abbott, Gannett.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

Recent Articles