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My Top Commodity Trade Today

By Matt Badiali, editor, S&A Resource Report
Wednesday, December 4, 2013

It's the kind of trade most folks would tell you you're crazy to make...
 
Over the past couple months, I've shown you how a bet on coal could easily return 100% or more over the next 12-24 months.
 
We have that opportunity because the sentiment toward coal is terrible...
 
Abundant natural gas supplies in the U.S. have pushed natural gas prices down. Since natural gas competes with coal as an energy source, coal prices have fallen, too. Plus, folks are worried that U.S. politicians will put coal-fired power plants out of business.
 
As I explained, that sets up a situation where you can buy coal producers at absurdly low prices and profit if things get a little "less bad" for coal here in the U.S.
 
And there's one more thing you need to know: The coal story is a global story. And the global story is bullish.
 
Let me explain...
 
As with many commodities, coal's supply/demand dynamics are greatly shaped by China...
 
Below is a table of the world's largest coal producers.
 
World Rank
Country
Est. 2012 Production
(Million metric tons)
1
China
3,549
2
United States
935
3
India
595
4
Indonesia
443
5
Australia
421
6
Russia
354
7
South Africa
259
8
Germany
197
9
Poland
144
10
Kazakhstan
126
Data from the International Energy Agency

China is not only the world's largest coal producer. It is also the world's largest consumer. The country needs vast amounts of cheap power to continue growing. And coal is its fuel of choice. It gets 80% of its electricity from coal.
 
According to the International Energy Agency (IEA), the top five consuming countries accounted for nearly 75% of the world's coal consumption. China consumed more than twice as much coal as the next three largest consumers combined.
 
Here's the breakdown:
 
World Rank
Country
Est. 2012 Consumption
(Million metric tons)
1
China
3,678
2
United States
822
3
India
753
4
Russia
251
5
Germany
241
6
South Africa
187
7
Japan
184
8
Poland
140
9
Australia
137
10
South Korea
127
Data from the International Energy Agency

Although China produces an enormous volume of coal, the cost is high. Its coalmines are small, dirty, and dangerous. To address that problem, China is shutting down many of them... In 2012, it shut down nearly two per day.
 
Going forward, the government will not permit any new mines with production of less than 300,000 metric tons per year. It will only focus on mines that produce large amounts of coal. Only projects so big that they "move the needle" on China's coal supply will be permitted.
 
Those mine closures, as well as rising demand in China, mean it will need more imports. And China isn't alone.
 
Global demand for coal power will grow by 434 gigawatts through 2020, according to energy publication Bloomberg New Energy Finance. That's 41% higher than the current capacity.
 
While some older coal-powered stations will shut down, the newer coal-burning power plants will add about 1.1 billion tons of new demand per year to supply the fuel.
 
According to an Energy Information Administration forecast, the conservative estimate of coal-demand growth is about 1.3% per year through 2040. However, respected commodity research firm Wood Mackenzie forecasts a 25% rise over the next six years.
 
William Durbin, Wood Mackenzie's president of global markets, told an audience at the World Energy Congress, "China's demand for coal will almost single-handedly propel the growth of coal as the dominant global fuel... Unlike alternatives, it is plentiful and available."
 
In short, the broad, global demand picture is positive for coal. Coal producers are cheap. And folks can't stand the thought of owning them.
 
It's time to buy.
 
Good investing,
 
Matt Badiali




Further Reading:

Amber Lee Mason and Brian Hunt recently showed readers another "bad to less bad" trade in the natural resource sector. This trade could double your money over the next two years. In fact, it's a "near certainty" that you'll make 100% gains. Learn more here.
 
"Finding assets that have been hammered for some reason... be it a natural disaster, a broad market selloff, or a long industry downturn... buying them after the market has bottomed, and making tremendous returns when a bit of normalcy returns to the market... is the single greatest trading strategy on the planet," Brian says. Learn how you can spot these setups – and make massive returns – in this classic interview.

In The Daily Crux
Market Notes
Another bullish sign for the economy... hotel giant Wyndham Worldwide soars to a new all-time high.
 
Canadian dollar fund FXC hits a three-year low.
 
Medical device makers are quietly booming... new multiyear highs for St. Jude and Smith & Nephew.
 
An ugly year for bond investors... big Treasury bond fund TLT is down 12% so far in 2013.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1795.15 -0.3% +27.4%
Oil (USO) 34.51 +2.5% +5.9%
Gold (GLD) 117.96 +0.3% -29.0%
Silver (SLV) 18.42 -0.2% -43.4%
U.S. Dollar 80.63 -0.3% +0.9%
Euro 1.36 +0.4% +4.2%
Volatility (^VIX) 14.55 +2.3% -12.6%
Gold Stocks (^HUI) 193.85 -1.6% -55.9%
10-Year Yield 2.78 -0.7% +70.6%

World ETFs
Symbol Price
Change
52-Wk
Japan (EWJ) 11.98 -0.4% +30.9%
USA (SPY) 179.75 -0.4% +29.9%
Israel (ISL) 16.59 +0.4% +28.3%
China (FXI) 39.43 -0.9% +10.3%
Russia (TRF) 15.11 +0.3% +8.3%
Taiwan (EWT) 14.26 +0.6% +7.8%
S. Korea (EWY) 63.27 -1.0% +6.7%
Canada (EWC) 28.70 -1.0% +3.7%
Singapore (EWS) 13.52 +0.5% +3.0%
India (IFN) 20.11 +0.4% -1.1%
S. Africa (EZA) 61.07 -2.1% -2.8%
Lat.America (ILF) 36.83 -0.8% -9.1%

Sector ETFs
Symbol Price
Change
52-Wk
Alt. Energy (PBW) 6.28 -0.6% +67.8%
Biotech (PBE) 37.22 -1.5% +61.0%
Media (PBS) 24.72 -0.9% +53.1%
Defense (PPA) 29.66 -1.0% +48.1%
Transportation (IYT) 128.52 -1.0% +44.2%
Health Care (IYH) 115.15 -0.9% +39.0%
Retail (PMR) 34.70 +0.0% +37.9%
Consumer Svcs (IYC) 118.21 -0.7% +37.8%
Industrials (IYJ) 96.56 -0.6% +37.7%
Financials (IYF) 77.79 -0.9% +34.4%
Big Tech (QQQQ) 85.41 -0.1% +31.9%
Semis (PSI) 17.98 -0.2% +29.7%
Software (PSJ) 34.34 -0.1% +29.4%
Construction (PKB) 20.93 -0.7% +24.9%
Water (PHO) 24.85 -0.6% +23.9%
Nanotech (PXN) 7.02 -1.0% +23.9%
Telecom (IYZ) 28.34 +0.0% +22.3%
Basic Mat (IYM) 77.25 -1.1% +19.6%
Insurance (PIC) 19.01 +0.1% +18.3%
Utilities (XLU) 38.06 +0.5% +12.8%
Real Estate (IYR) 62.70 -0.1% +2.2%

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