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XMFSinchiruna (27.71)

Huge Coal Correction in progress

Recs

24

July 02, 2008 – Comments (8)

Those who are long... relax... this is a temporary correction in a long-term supply/demand driven bull market for coal.  Those who were not yet long.... this is your 4th of July present from Wall Street.

NEW YORK, July 2 (Reuters) - Stocks in coal mining companies tumbled on Wednesday after both physical and swaps prices fell in what traders said was a long-awaited correction.

Analysts noted the benchmark European price dropped from around $225 per tonne to below $200, which in turn dragged down U.S. prices.

The Dow Jones coal index was down 10.1 percent in New York at Wednesday midday.

"The U.S. guys have been signing contracts at very good numbers, well into the triple digits, but the stocks don't reflect that," said Jeremy Sussman, a coal industry analyst with Natixis Bleichroeder.

"We are telling people now is a good time to buy."

In London at least one physical coal cargo has traded almost $20 lower than prices indicated on Tuesday and bids have pulled back by over $20 from Tuesday's levels for South African cargoes FOB Richards Bay and multi-origin coal delivered into Europe.

Australian coal FOB Newcastle reached $201 a tonne earlier in the week and Newcastle swaps hit similar numbers. Newcastle swaps on Wednesday began trading at $192, $185, $183 and $177.

Richards Bay cargoes traded close to $180 early in the week but bids had pulled back to $150 by Wednesday afternoon.


NEW YORK, July 2 (Reuters) - Stocks in coal mining companies tumbled on Wednesday after both physical and swaps prices fell in what traders said was a long-awaited correction.

Analysts noted the benchmark European price dropped from around $225 per tonne to below $200, which in turn dragged down U.S. prices.

The Dow Jones coal index was down 10.1 percent in New York at Wednesday midday.

"The U.S. guys have been signing contracts at very good numbers, well into the triple digits, but the stocks don't reflect that," said Jeremy Sussman, a coal industry analyst with Natixis Bleichroeder.

"We are telling people now is a good time to buy."

In London at least one physical coal cargo has traded almost $20 lower than prices indicated on Tuesday and bids have pulled back by over $20 from Tuesday's levels for South African cargoes FOB Richards Bay and multi-origin coal delivered into Europe.

Australian coal FOB Newcastle reached $201 a tonne earlier in the week and Newcastle swaps hit similar numbers. Newcastle swaps on Wednesday began trading at $192, $185, $183 and $177.

Richards Bay cargoes traded close to $180 early in the week but bids had pulled back to $150 by Wednesday afternoon.

Miners were the top losers in London, with BHP Billiton falling 4.4 percent, Rio Tinto 4.39 percent and Anglo American lost 4.3 percent.

In midday trading on the New York Stock Exchange, Arch Coal was down 12.81 percent at $65.50, Consol Energy dropped 10.8 percent to $99.86, Massey Energy fell 11.82 percent to $81.43 and Peabody Energy was down 7.06 percent at $79.83. (Reporting by Steve James in New York; additional reporting by Jackie Cowhig in London) 

8 Comments – Post Your Own

#1) On July 02, 2008 at 1:04 PM, eskatonic (29.12) wrote:

I'm hoping this is a buying opportunity.  I went long 1/2 a position to see how it goes.

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#2) On July 02, 2008 at 1:06 PM, eskatonic (29.12) wrote:

do you think this is fund managers undoing their end of quarter window dressing so they can go back to their normal gameplans  (traditional defensives, bottom picking ect) ?

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#3) On July 02, 2008 at 1:12 PM, XMFSinchiruna (27.71) wrote:

eskatonic... excellent move!  ;)

I won't try to guess exactly who was doing the selling and why, but after a weak and short-lived mini-correction a couple of weeks ago, a more cleansing dip was certainly not out of the question.  As I stated somewhere else, though, I would bet it just came so suddenly that id had a snowball effect.  I would have anticipated an 8-10% correction, but this 15% move in some of th equities was quite deep.

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#4) On July 02, 2008 at 1:55 PM, Gemini846 (49.69) wrote:

We may even go down again tomorrow but I think it will stabalize before the end of trading. Monday or tuesday should be rocketman for these guys.

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#5) On July 02, 2008 at 5:45 PM, colonelnelson (42.20) wrote:

Gads, what timing!  My three CAPS coal picks from last night are down 8.89%, 11.73% and 6.91% after just one day!

If there were a Lucky Charm awarded for bad timing, I'd have earned it!

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#6) On July 02, 2008 at 6:30 PM, Tastylunch (29.24) wrote:

Man this is fantastic news for me. Coal is one commodity I feel very confident about where it's headed long term but I procrastrinated in buying. I'm going to wait until the Technicals calm down then load up.

What luck :-)

dude thanks so much for all the info and I appreciate the feedback on the previous post.

 

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#7) On July 02, 2008 at 9:53 PM, XMFSinchiruna (27.71) wrote:

After stepping back from today's action and reflecting, I cannot hazard a guess whether tomorrow sees further selling among commodity equities as  Gemini846 suggests above or the beginning of recovery at least in the hardest hit sectors like coal, but I have a hunch spot prices for the underlying commodities will rise.  Tomorrow's interest hike by the ECB will send the dollar lower, and the supply story keeps coming into view among investors.  As I mention in  my previous post, I believe those directly affected by the strike in Peru and the other specific supply-constraining events have some further downside before resuming the long-term secular bull market in commodities.

 

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#8) On July 02, 2008 at 11:01 PM, beegdawg007 (< 20) wrote:

I love coal in the longrun, and I recently made a lot via investments in WLT, ANR , PCX and several small Canadian Coal mines.  I closed those out recently.  I have done my homework and I understand what is going on here.  Sometime in the next six months, these stocks will again surge because the 2009 and 2010 earnings will be unbelievable.  However, newbees to coal investing should be aware that most U.S. coal companies will not experience a real surge in earnings until 2009, because the coal that they are now delivering is being delivered under contracts for prices which were set during 2008 at much much lower prices.   Even pure coking coal plays like WLT will deliver the bulk of coal during the next six months for prices which are dramatically lower than the prices starting in 2009.   There are three exceptions to this that I am aware of.  FDG, Western Canadian Coal and Grande Cache Coal.   All three of  those "Canadian" met coal companies have fiscal years which coincide with the coal contract year, which starts April 1st.   With the exception of a little spillover coal from last year, (5% or so)  all of the coal sold by these companies from April 1 2008 to March 31st 2009 is in the $300/tonne price range for coking coal and $250/tonne for PCI coal.   These three companies are very cheap based on 2008 earings.   Fore example, Grande Cache and Western Canadian now trade for about 4 times this year earnings. 

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