Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Coal Prices Will Soar

Commodities / Coal Jun 17, 2010 - 03:15 AM GMT

By: DailyWealth

Commodities

Best Financial Markets Analysis ArticleChris Mayer writes: In 2001, consensus opinion had the population of Beijing, China hitting 14 million by 2040. It topped that by 2003. Today, it has about 22 million people.

Also in 2001, experts thought Beijing would have – gasp! – 1 million cars on its roads by 2010. It also topped that figure in 2003. Today, there are nearly 5 million cars on the road.


China is now the world's largest car market and is quickly becoming the world's largest market for a number of consumer goods. It's also the world's largest market for mobile phones.

On a recent trip to Beijing, I saw these numbers come to life... and watched the unfolding boom serving China's new and growing disposable incomes. Besides busy shops and restaurants and 5 million cars on the road in Beijing alone, there is something more basic that underlines all of this. In fact, it is more fundamental to the entire story of Asia's new consumer.

It's energy. Yes, all those factories require power. But so do iPods and air conditioners. So do cell phones and computers. The modern consumer economy is a plugged-in economy that eats electricity like locusts devour crop fields.

As a result, China has added power plants as fast as they can make 'em. China adds more every day, accounting for about 80% of worldwide construction. The Economist reports that the capacity China adds in 2010 will exceed the entire installed base of Brazil. In the next two years, China will produce more power than the U.S.

Where does the power come from? About 80% of it comes from coal. Not just coal, but awe-inspiring amounts of the stuff. Consider that in 2000, China used about as much coal as the U.S. Here we are 10 years later, and China consumes three times as much as coal as the U.S.

There are a couple of problems with coal. One won't surprise you, but one may. First, coal is a dirty fuel. You have to spend only a few days in Beijing or any of the big cities to see what burning so much coal does to the sky.

This creates many health problems in China, and the Chinese know this. Hence, there has been a lot of money flowing to alternative modes of power generation — like wind and nuclear.

The other problem with coal, which might surprise you, is that China may have a hard time making more of it. This line of thinking comes from Richard Heinberg at the Post Carbon Institute.

As he points out, China is now burning some 3 billion tons of coal per year. In the last decade, it added 2 billion tons of production. That's quite a feat. But as Heinberg points out, it gets much more difficult from here.

"Imagine building mining and transport infrastructure three times the size of the entire U.S. coal and rail industries in just 10 years," Heinberg writes. "That's what it will take for China to maintain 7% growth rates." Heinberg calls his 7% assumption "conservative," as China's growth rates to date have been much higher.

Another limiting factor is water, of which the Chinese are already relatively poor. As Heinberg points out, "A typical 500-megawatt coal-fired power plant uses about 2.2 billion gallons of water each year to create steam for turning its turbines – enough water to support a city of 250,000 people."

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.

"This means if China imports double again next year – not an unrealistic scenario – China will need to import more coal than Australia can currently provide," Heinberg notes. "One more doubling of import demand and China will be wanting to import 600 million tons per year, about the total amount of coal exported by all exporting nations last year."

This is fairly astounding math. And the first thing it makes me want to do is buy coal. It doesn't take a lot of brains to see that if this kind of demand scenario unfolds, it is going to drive up the price of coal everywhere.

And as coal is still the primary means of generating power in the world, it's going to have ripple effects throughout the energy chain. Natural gas-fired plants, for instance, will look increasingly valuable, especially as natural gas prices continue to wallow in the mud.

Another idea is to look at the engineering and construction firms (E&Cs).

The E&Cs are in the business of building the hardware you need to process and produce energy. They build coal-fired and nuclear plants. They build refineries and liquefied natural gas (LNG) terminals and biomass boilers. If you need more energy, you need an E&C.

E&Cs rise and fall with spending on energy projects. As oil demand (and pricing) has recovered in 2008 and 2009, this sets up strong capital spending for the next several years.

There are valid short-term concerns about China's overheated economy and property market. Sure, those concerns could depress prices for a while. But considering the extraordinary long-term demand picture here, I'm going to use any such correction to buy more coal, natural gas, and E&C stocks. I recommend you do the same.

Regards,

Chris Mayer
Editor's note: Chris Mayer is the editor of Capital & Crisis, a monthly advisory we consider required reading at DailyWealth. With Chris' research, you can always count on contrarian investment ideas you won't read about anywhere else. Click here to learn more about Capital & Crisis.

http://www.dailywealth.com

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in