Sell Coal Stocks! The Dollar is Up 0.000002%!

Danger Will Robinson! Sell coal stocks - CNBC says the run is over! CBSMarketwatch opines after a 2 day correction "Have Commodities Peaked?". 2 days - that's massive - the end of days are upon us. Crude might "fall" to $115 and the malls will be teaming with over eager consumers basking in $3.50 gasoline. As goes crude, so goes coal - I mean it's the same color! Bernanke will be attacking inflation with the use of 3 and 4 syllable words (not raising rates but using even STRONGER language) as the 1 and 2 syllable words were not effective at "breaking the back" of inflation so far this summer. Get out! Hurry!

Bloomberg July 8 - China Shuts More Coal Power Plants; Warns on Shortage

• China, the world's second-biggest energy consumer, shut 2.5 percent of its coal-fired power plants, prompting local governments to limit electricity consumption and issue warnings on possible blackouts. Insufficient coal supplies forced the closure of 58 power- generating units in central and northern China as of July 6, or 14,020 megawatts of capacity, data from the State Grid Corp. of China showed yesterday.
• Coal inventories at State Grid, the country's biggest power distributor, were enough for about 11 days of consumption as of July 6, compared with 12 days in April and 15 days in March.
• ``The power problem is beginning to look deep-seated and structural and unlikely to be resolved rapidly,'' said John Kemp, a London-based analyst with Sempra Metals Ltd. (Yes John, welcome to the reality of a World of Shortages)
• The latest power-plant closures come even as the government last month imposed ``caps'' on thermal-coal prices through the end of the year to control raw-material costs and ensure electricity production. ``Coal suppliers may sell the fuel to consumers willing to buy at much higher prices."
• Aggravating the shortfall, China has been shutting thousands of small and unsafe mines in Shanxi and other areas. China generates almost 80 percent of its power from coal, with the northern province its biggest producing region.
• The central province of Henan restricted electricity use in eight cities as power plants shut because of fuel shortages, Xinhua News Agency reported on June 27. Henan will face a power deficit when consumption peaks in summer, it said.
• State Grid Corp., which buys electricity from 541 coal- fired power plants and distributes it to more than 1 billion people across the country, said yesterday the coal stockpiles of 64 power plants have fallen below the ``caution line.'' That means that the inventories of those generators can't meet more than three days of consumption
• Overseas suppliers may be unwilling to sell the fuel to China because of the government caps on domestic prices announced on June 19, Fang said on July 1. That would aggravate the country's coal shortages. (hmm, here is a solution - pay up)
• Global coal prices will ``move modestly higher over the next six to 12 months,'' Daniel Brebner, UBS AG's executive director of commodity research in London, spoke in a phone interview on July 3. ``You have infrastructure issues building in both the U.S. and Russia, and a potential power crisis in China over the summer.'' (so the US is just like any old BRIC developing country eh?)

Russia you say?

• Russia's hydro power levels have fallen to the lowest for 16 years and coal-fired plants are struggling to take up the slack because a rail wagon shortage is making it hard supply enough fuel, Russian coal exporters said on Monday.
• "The acute water shortages are in the European part of Russia, the stations on the Volga river, and these account for about one-third of our electricity production," Yushin told Reuters. (water - the ultimate shortage)
• On top of that, there are around 20,000 rail wagons in Russia but 30,000 are probably needed, with old old wagons falling apart three times as fast as they can be replaced.
• "The Chinese don't have wagons to spare for export. They have their own huge need to meet," a Russian coal mining source said.
• Not only large-scale coal-fired plants but also smaller communal combined coal-fired heat and power plants serving several apartment blocks could run out of fuel in the winter due to transportation problems. "The coal plants usually buy their fuel for the winter now, in the summer, and build stocks. At this rate, if nothing changes, we think there could be four power stations shut down during the winter in the west of Russia, at Murmansk, St Petersburg, and elsewhere," an exporter said.
• The government is likely to displace some coal exports from the rail network in order to prioritise the movement of domestic coal, the exporters said. (ok so you're saying that Russia will keep coal in house instead of exporting to China - got it - let me go sell my coal stocks) "The producers all have large stocks of coal in Kemerovo and elsewhere at the mines but they can't move it because there are so few wagons," another major exporter said.
• Even without a hydropower shortage Russian coal exports were projected to fall by at least 10-12 million tonnes in 2008 from around 85 million tonnes total thermal and coking coal last year, exporters said. (that sounds like a problem, but coal stocks are down and CNBC says the run in commodities is over - sniffle - I better sell)
  

Desperation anyone?

• More U.S. coal is moving to Asia, including the first Utah coal and the first whole cargo of Powder River Basin coal through Westshore Terminals at Vancouver, Canada, market sources said Monday. Utah coal has never before moved through Westshore, the largest dry bulk terminal on North America's West Coast, and Powder River Basin has shipped there only as part of a blend, said Denis Horgan, terminal general manager.
• "It's because there's such a shortage in the world market now," said John Hanou, vice president of Hill & Associates, a coal consultancy. "It tells you how desperate people are." "We're seeing inventories around the world depleted," he said. (but... but... the dollar is rallying here and all commodities must be sold - the hedge fund playbook says so)
• A person familiar with the PRB market said the coal is going to South Korea to replace Indonesian power-plant-grade coal, which is comparable to PRB. "Never, ever, has Utah coal gone through here before," said Horgan. "The rail rate is prohibitive, and it can only happen in a high-price scenario." The Utah mine is more than 1,600 miles from Vancouver, making the haul one of the longest ever done for export coal in the United States, Hanou said.

Well all we need to do is get some more mines up and running, and take care of this shortage lickety split! Err... umm....

• The cost and lead time involved in acquiring new equipment are among the impediments to raising coal production in the United States, a coal company executive said on Friday.
• The cost of both machines and supplies has risen sharply, and manufacturers need lead times of as much as 36 months to deliver equipment, said Paul Vining, CEO of Magnum Coal.
• For example, the cost of roof bolts, the long rods driven into mine ceilings to secure tunnels, has risen 60 to 80 percent in three years due to higher steel prices, Vining said. (No inflation here Ben - I mean I don't eat roof bolts so it's not food, and I don't light my house with roof bolts so it's not energy - but don't you worry, it's not part of the core rate so it doesn't exist - let's keep those rates super low!)
• As for lead time, it takes 18 to 24 months to get a new mining machine and up to 36 months to get a big coal-hauling truck. Even tunnel tram cars take 15 months, he said.
• The equipment and supply issues come atop tighter government safety and environmental regulation, a shortage of qualified labor and declining reserves, Vining said. (but other than that, there should be a booming supply of coal any week now)
• He said productivity in the key Central Appalachian area -- the amount of coal produced per worker -- is down 15 percent in the past three years due to the various challenges.

For your own safety - please ignore CNBC. And if your timeline is any longer than 4 weeks, get some coal. Again. [May 1: Walter Industries - the Most Amazing Company] I wrote then

So as you see the "strong dollar" is not going to do diddly unless it appreciates by say 750-900% by next year at this time... at which point I'd still be a bull on coal. As long as those Chinese want steel at any price, we are happy campers. I am trying to hand you a gift here, so that you make enough money so that EVERY reader can invest in my mutual fund when we launch in 2009 (right?) - remember, coal is going to be next year's fertilizer... with CNBC anchors aghast at coal and wondering "where did this all come action come from, I thought the bubble ended last year with that stupid potash!". I'm telling you now, a year ahead of time. I'm using Alpha Natural Resources (ANR) and Massey Energy (MEE) more specific for the metallurgical coal but any coal name has some exposure. [Apr 8: Changing Coal Allocation - Peabody Energy Out - Alpha Natural Resources In]

I'm reiterating the table pounding. Whatever the stocks do in the next 2-6 weeks. Same for "this year's" fertilizer - namely, fertilizer. ;) Ignore the punditry that streams out every 10-12 weeks about the end of an era.

Note to newer readers - I post a variation of this same entry 3 months and will probably continue to do so for, oh another decade. [A Long Term View on Commodities]

Long a bunch of coal and fertilizer; short CNBC pundits