Buy What China Needs: Coal

Since tanking after those April highs, the market has created some interesting opportunities. Stocks I have highlighted in the past, but have not bought, look much more appetizing now that they are 25% cheaper or so.

For example, China’s leading coal stocks are all down 25% or more of late. This includes China Shenhua Energy, China’s largest coal producer, and China Coal Energy. Other nearby operations, like miners in Mongolia, suffered similarly.

As far as I know, China will still need coal. China consumed 47% of the world’s coal last year. The growth of that demand has been mind-boggling – so much so it is hard to wrap one’s mind around it. In 2000, China consumed as much coal as the US. Today, it consumes three times as much as the US.

China will be pressed to produce the coal it needs domestically. In fact, after being self-sufficient in coal for years, China has begun to import coal. This year, it will import 150 metric tons, which is double last year’s total. It may seem a molehill compared with what it burns, but that molehill is about 60% of Australia’s coal exports – and Australia is the world’s largest coal exporter – and growing.

Oddly, Australian miners are up big – Macarthur Coal up 65% over the last 12 months, for instance, as is Aussie’s Centennial Coal. It might be a good time to fade the Aussies and go long the Mongolians. China will have no choice but to import large amounts of coal.

Chris Mayer
for The Daily Reckoning