While crude oil prices has been spasming (trying to find a direction) the last few days after hitting an all time high last week, coal continues to march ahead. globalCOAL’s NEWC weekly index reports coal trading at $138.35/tonne for the week of May 23 versus $134.85 the week before. The record high was $139.16 back on February 15th.

Problems on both the supply and demand sides continue to support higher coal prices:

1. China continues to be forced to close power plants due to shortage of coal. Current coal supplies will only last for 3.1 days of power generation which is much lower than the 7 day minimum supply usually needed.
2. Export train from Colombia’s Cerrejon mine was derailed on its way to Puerto Bolivar due to terrorist attacks.
3. Bottlenecks at Australia’s Newcastle port has caused coal exports to decline by 18%. Furthermore, queue of coal ships waiting to carry the coal has increased, tying up coal ships for 13.5 days while waiting to load coal versus the 0.38 days average loading time for general cargo ships.

More Coal news at globalCOAL

These supply and demand problems should continue to act as a driver for coal and all of coal’s supporting infrastructure. Even as coal stocks are at or near all-time highs, coal miners like Arch Coal (ACI), Patriot Coal (PCX), and Peabody Energy (BTU) can still be bought on dips. Likewise, methods of transporting coal such as the rails, barges like Kirby (KEX), and dry shippers should still have momentum. Finally, coal mining equipment makers Joy Global (JOYG) and Bucyrus (BUCY) has products that are in high demand to continue to open new mines and bring out coal.

No need to chase these. This is just to highlight how real the problems with coal and power generation is. The bottlenecks at ports like Newcastle won’t be fixed overnight, or even over a year, as whole port cities might need to be constructed and railways built in order to get all the coal out. In China, even with the earthquake temporarily knocking out several provinces and thus their energy use, China is still 4 days short of coal. For a country that big, it will take a lot of coal just to bring coal supplies back to that 7 day minimum (not even a slight surplus for rainy days). Meanwhile, summer is approaching and U.S. utilities will be fighting the foreign buyers as U.S. utilities try to keep their requirements of coal from being exported.

**Disclosure: I own shares of PCX and BUCY as of this post**

SuckingLess.com: globalCOAL feature - Coal Prices & Data, News & Analysis, Trading system

SuckingLess.com: Energy Sector Resources

Ok, the market is downright giddy today post-expiration.  Either giddy or short busting as many people, including a few I work with, seemed to think this 1410 level on the S&P would be serious resistance.  I thought so too, but technical levels are just guidelines.  This is definitely a living example of how high skepticism in rallies fuels rallies higher.  Haven’t posted in a while so thought I’d opine on two points I think are relevant to this current rally:  the China Earthquake and the current industrial/commodities leadership sectors.  The lack of postings lately is due to some uber-intensive research I’ve been doing, but I’m reluctant to recommend long ideas while the market is so hyperactively giddy or, as Pete Najarian on Fast Money says, giddy-up (when the market is giddy, it goes up…simple!).

China Earthquake Trades
Some of you might find the concepts I’m going to throw out here inconsistent or contradictory, to which I say, please, have a flexible mind and be able to think with just a tiny bit of complexity.  LONG TERM (5-10 years), and medium term (next year or so), industrials and commodities IS the place to be, and nowhere else.  Mark my words.  The replacement of “ing” in the word DEVELOPING nations with “ed” is the biggest opportunity of our lifetimes.  Not just the BRIC (Brazil, Russia, India, China) countries but also importantly the Mid East as well as Southeastern Asia and parts of South America like Colombia.  So, if you’re not going to cash out your investments in the next year or so, this doesn’t concern you.

For the traders/short term investors, I believe traders are assessing the ginormous earthquake damage in China wrong and I am a strong seller into the earthquake-rebuild commodity rally.  There’s nothing wrong with trading this rally as long as you realize there is no fundamental support for the rise in commodity prices just because of the earthquake rebuild.  First, it doesn’t even seem like China is halfway done with the rescue operations and people are speculating how much commodity demand there’ll be for the rebuild.  One thing I’ve learn is that traders and this market is impatient, but large physical events like an earthquake recovery takes years.  Yes, the rebuild will be there and will suck up a lot of commodities, but that will be months if not years in the future, at which point we’d lave long lost the A.D.D. attention span of the market.  I’m guessing that within a week or two, traders will be looking at the rescue operations still going on slowly and demand for metals might actually drop as factories in the region are all out of action.  Traders will see this as their theory not playing out and sell the overbought metals.  Once we clear out these dummies, then I’d add to my long term positions, but not before.

The China demand for metals will be there, just as the airplane demand is there, but people still sold Boeing (BA) shares as the delays pushed the plane deliveries out further into the future.  This is happening right now, which is why everyday I wake up grateful for this opportunity to buy Boeing 787-plays like Precision Castparts (PCP) for cheaper than I could have at this time if Boeing were already on schedule to deliver planes this year rather than next.  I believe the exact same scenario will play out with commodities and China: the pent up demand will be that much greater with this earthquake rebuild as people are correctly anticipating- it’s just a bit further out into the future than most people can patiently wait for…which gives the rest of us the perfect “buy the dip” opportunity.

Next: Point 2- Is a Commodities/Industrials Led Rally Healthy?

**Disclosure: I own shares of PCP** 

As promised, I’ve donated all of the revenues I earned last year from this site though Google Adsense. Thanks to the visitors in 2007, I earned $103.99 from the Google ads on this site.

Tonight, I donated that $103.99 to March of Dimes.

Thanks to all the visitors and supporters of this site.  I know seeing the ads sometimes gets annoying, but I hope knowing that I do put the income from the ads to good use makes them more bearable!  I post to this blog more for myself and keeping my trading thoughts straight, so it wouldn’t be right if I kept any of the money.

However I’m glad some of you have found these posts even remotely helpful to your trading/investing.  Yes, I’d admit half the time I’m not sure if I’m saying the right thing.  Then again, if you’ve got a 50% success rate in this business you’re considered pretty good. As we push on through this recession and this bear market, I hope all this will be a great learning opportunity to become that better of an investor/trader when the bull market does return. I know I’ve learned more in the first quarter than ever.

I will be launching a site I’m making for fun to gather online resources for doing homework on our stocks.  I have registered the name SuckingLess.com for this purpose, so keep an eye out for when I put that up and I hope you’ll all contribute something and help everyone do homework better and faster!  Why call it SuckingLess.com?  Like I said, a 50% success rate in this business is considered pretty good, but that still means half the time we suck!  So, the plan is, if we can help each other do better homework, and suck less, we can make more bling.  Until then, bling bling, and take a look at March of Dimes and make a donation if you can. If you already have a favorite charity, please write in and let me know where to donate my 2008 website earnings!

March of Dimes Mission Statement

“Our mission is to improve the health of babies by preventing birth defects, premature birth, and infant mortality. We carry out this mission through research, community services, education and advocacy to save babies’ lives. March of Dimes researchers, volunteers, educators, outreach workers and advocates work together to give all babies a fighting chance against the threats to their health: prematurity, birth defects, low birthweight.”