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Saturday, July 05, 2008

The First Horseman Of The Energy Traders' Apocalypse

Last week coal hit the wall:
Newcastle and South African cargoes have plunged by over $20 a tonne in the last day, apparently triggered by fears of a European economic slowdown and concerns that the coal shortage in China might not be quite as extreme as supposed.
Richards Bay coal prices in South Africa peaked at just over $180 a tonne earlier this week but bids fell back to nearer $150 yesterday. Delivery prices on the Rotterdam and Antwerp markets fell by over $22 a tonne.
More, trying for optimism:
If you look at the coal sector's performance yesterday -- from the price of coal, to the coal companies themselves, and even to miners in general -- anyone associated with the industry got covered in soot.

The Dow Jones U.S. Coal Index tumbled 14% yesterday, leaving investors who hold coal stocks perhaps feeling like canaries in a coal mine -- wondering whether they should take flight.
Delivery and processing costs are adding up. Take a look at this article and think about what it is really saying. There is the intermediate contract cost, the production cost and then the cost at which you can unload it. As oil rises, the cost of shipping and production rises.

One clue about coal is that it is disproportionately used by China and India, which generally restrict how much the power plants can charge for output. And at these prices, they probably just can't buy it. Then extend the logic....

Coal is picking up again for household use in the US NE!! Both natural gas and oil have risen way too high for the market.

From the first link:
Coal is responsible for 40% of the world's energy needs, while places like India rely upon coal for nearly 70% of their energy supply. China counts on coal for 78% of its supply, and the country accounts for one-quarter of the world's coal consumption. Natural and manmade influences have also affected supply.

South Africa's power grid outages earlier this year, coupled with floods there, in Australia, and even here in the Midwest, have served to reduce supplies. Meanwhile, the Chinese government is forcing miners like Yanzhou Coal Mining (NYSE: YZC) to increase production but lower prices.
Lean back and smoke a cigarette as the footage of waves crashing on the shore flickers on the screen.

You are boldly repetitive though consistently wrong. But, even a broken clock...

From your blog:

Monday, December 05, 2005

Earlier this year SC&A and I were debating (privately) the oil "shortage", and I claimed that oil was heading to the 50's this year and should drop to $45 a barrel next year. I haven't changed my mind, and now the NY Times publicizes oil execs worrying about the same thing:

In a recent speech in Singapore, John Browne, the chief executive of BP, spoke of a possible sharp drop in prices and called current levels "unsustainably high."

John Hofmeister, head of Shell Oil in the United States, said during an interview, "This high price cycle is artificially inflated."
It is and prices are going down after a wave of speculation and market response to increase production. Greenspan knew it, and now you do too.

How daring but completely off-base and clueless.
Bubbles typically last longer than the bears think possible. They are typically deeper than the bulls think possible.
Anon - you are right. I completely missed the Asian subsidy problem, because I knew about its contribution to the late 90's Asian currency crisis and I figured they wouldn't repeat the same mistake. Also, at about that time several countries had gone through the angst of raising their internal energy prices. See example.

But - they did not continue, and I did not keep up with the situation, and that was why I was wrong. It is a mistake I will not repeat, although of course I will make others.

I wonder what US oil consumption would be if we had major subsidies? Certainly a lot higher.
The price of coal includes the price of transport. That means bunker oil and more importantly, shipping rates. Not enough barges and significant pricing power for those.
There is coal and then there is coking coal. Not all coal is created equal just as not all oil is created equal.

Although all coal companies stocks declined steeply on Weds., some will not decline as much as others and may even rise again. When investing in coal or oil, it pays to know these facts. Although panics often override facts for a while.
My spam filter is no longer trapping "GOLD! GOLD! GOLD! GOLD! GOLD! GOLD! GOLD! GOLD! GOLD!" come-ons.

It's switched to "OIL FUTURES! OIL FUTURES! OIL! OIL! OIL! OIL! OIL! OIL! OIL! OIL!" come-ons.

One of my buds said it sounded like what you hear from pump-and-dump pimps just before they cash out and let the market crash.
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