Coal isn’t exactly the most glamorous or exciting fuel on the planet…
But it still dominates the global landscape. And it’s the top source of electricity generation, accounting for more than 40% of the fuels used for producing electricity.
Natural gas is the second-highest fuel source of electricity production – and will surpass coal by the end of this decade.
But until natural gas overtakes coal, there’s still a ton of profit up for grabs in the coal industry.
And when there are profits at hand, who cares about the excitement level?
[ad#Google Adsense 336×280-IA]Case in point: In June, I recommended that you look at a company that’s heavily involved in the metallurgical coal sector – Walter Energy (WLT).
Back then, shares were trading around $12.
Today, they’ve bounced to $18.20.
So is now the time to enter another coal play?
Let’s take a look…
Coal – Satisfying the World’s Need for Cheap Energy
The main reason for coal’s uptick is simple economics: When the price of a certain fuel gets super cheap, people simply use more of it.
Plus, as the economy grows, so does demand for power from both consumers and industries.
In the United States, we get 45% of our power from coal-fired plants. Other countries rely on coal for more than 50% of their power generation. And that’s not going to change in the near future. Why?
Simple. Despite its inefficiency and pollution, coal is a cheap source of power. And with many areas of the world still developing, five billion people can’t call up the utility company and ask to tap into the gas line.
In the long term, coal stocks are the least likely to shoot to the moon. But for now, good old-fashioned supply and demand is driving coal prices higher.
Leaner, Meaner Coal Companies Now in Position to Profit
In my travels, I see the results of unfettered coal usage firsthand.
In places like New Delhi or Beijing, the pollution is so thick, it’s hard to see right in front of you sometimes.
The problem is, consumers making between $1 and $5 per day aren’t in the position to install solar panels or buy efficient heating systems. They need energy to survive – and they need it cheaply.
That’s the reality – and it will remain so for the foreseeable future.
After bottoming at under $90 per metric ton in 2012, coal prices have recovered, briefly trading above $100 per metric ton earlier this year before pulling back slightly.
It isn’t a full recovery, though. Not when you consider that coal prices jumped to more than $140 per ton in 2010. But coal companies have streamlined over the past few years – and now they’re set to benefit from any rise in prices at the retail level.
Bottom line: Coal makes for a good trade right now. The insiders at Walter Energy know it, too, as evidenced by their recent buying spree.
And “the chase” continues,
Source: Oil & Energy Daily