cheap moncler BTU is obviously the best choice for mom pop

Coal stocks could be near a bottom

Morgan analysts see some encouraging signs for coal (NYSEARCA:KOL), which would be good news for companies such as Peabody Energy (BTU 5.7%), Cloud Peak Energy (CLD 5%), Alliance Resource Partners (ARLP +0.9%) and Foresight Energy (FELP 1.2%). Coal equities have bounced off lows, the JPM crew says, which meshes with its belief that the greater financial challenges faced by oil and gas E should reduce natural gas supply and help coal prices later this year and into 2016. JPM has Overweight ratings on the two MLP coal miners ARLP and FELP, which it expects to benefit as the gas market tightens in 2016 and with the added attraction of yield in a yield starved world; BTU and CLD enjoy stronger balance sheets, which should see the companies through what could still be a sloppy coal market in 2015. Alpha Natural Resources (ANR 6.9%) and Arch Coal (ACI 4.3%), however, acquired so much debt that their equity effectively has become primarily an on fluctuations in the coal market, the analysts say.

Look at the new additions of Coal Power Plants last year, not good. The regulatory uncertainty and public perception of Coal power plants makes it unfundable/unfeasible. China is even trying to cut back on building coal power generation, which means it over for coal.

I think an unconsidered favorable trend for coal demand is the rise of electric cars.

These electric cars are actually fueled by whatever is feeding the power grid at the time and the location the cars are charged.

Across the USA, on average, this is about 40% coal. In China, on average, it is closer to 70%. And these percentages are higher at night because coal (plus hydro and nuclear) represent the base load power sources.

Electric cards are bad for oil companies but not bad at all for coal, and electric utilities.

CDM is right: when it comes to coal equities, a Wall Street shop calling any kind of a bottom is rather bold. but JPM are obviously sticking to the bigger names and safer balance sheets with this call. They designate ACI and ANR as "options," which is accurate, and they don’t even mention WLT.

BTU is obviously the best choice for mom pop, but around here I figure that most folks are trying to figure out the play on the leveraged names. Near term demand outlook is not favorable for any type of coal, given the macro factors, but longer term, the distinction needs to be made. Thermal coal demand will continue to be severely challenged by nat gas substitutes and environmental regulations. Met coal is MUCH better positioned longer term because a) there is NO substitute for coking coal in the steelmaking process, and b) high quality coking coal is much more scarce than thermal coal. (Eventually scrap steel will slow global coking coal demand, but this is at least a decade away.)

So the only "pure" met coal play, WLT, should be the best long term fundamental coal bet, but unfortunately it has the weakest balance sheet, and medium term viability is a legitimate risk. If WLT board and mgmt would only take some obvious steps to de leverage the balance sheet this year, we could be looking at one of the biggest revivals of a distressed public company since the depths of the financial crisis in 2009. That is to say, the same type of revival that saw Ford and many other $1 equities rise 15 20x in the next couple years.

Blake, The obvious steps are to a) execute at least some modest asset sales in line with what has been promised for well over a year and b) continue swapping equity for unsecured debt (yes, even at a buck a share this can still be done on similar terms to last year due to the equivalent collapse in the bond prices). As for trusting the mgmt to execute on this, I do not know them personally, so I cannot give a definitive answer. You are correct that the consensus outlook for met prices is grim. The ruthless Aussie majors are intent on destroying the North American producers by their continued production growth into a falling market (as they are with iron ore), and the world is awash in steel. I still believe China will take some more overt policy measures to stimulate steel consumption, but aside from weather related supply disruptions, I don’t know what catalyst would bring meaningful price increases in the near term. All I can say is that you don’t get opportunities for 10 baggers by buying when the outlook is rosy.

The desirable assets are more likely to be retained than sold in a BK process. And because that process is so lengthy, it is almost certain that met prices will be higher by the time any liquidations would occur. Even the bears seem to acknowledge that we are scraping along the bottom, so it would seem that now is the time for opportunistic buyers to come along. That being said, I don’t expect a large asset sale by WLT since the proceeds must be used to pay off the term loan (subject to some exceptions for reinvestment.)

There is no doubt that ACI and ANR are the safer plays. WLT’s survival chances are substantially lower but the upside is substantially greater. Not for the faint of heart.

I posted this on another BTU discussion:

BTU bonds, although high yield now, are steady.> The bond due 11 01 16, issued at 7.375% coupon, is trading at 103.9 or a YTM of 4.899%.> The bond due 11 15 18 issued at 6% coupon, trades at a YTM of 8.7% (91.3).

These are not distressed levels and BTU should be able to refinance, no problem.

However, I know that the other coal names are selling at very distressed levels (30 cents on the dollar). These companies bonds can not be refinanced. So, keep an eye on what the debt is trading at. It is usually a good indication where equity may end up.

As long as the mindset remains that firewood is cleaner than coal, coal is going nowhere fast!environmentalists argue that firewood produces unsequestered carbon while coal is sequestered carbon. You see firewood comes from trees which is short cycle as opposite as coal which is eon long cycle. go there!I have no beef with environmentalists but it is just that they are a little bit selfish with firewood smoke as you know how toasty it gets indoors with firewood as such. I think they need ice water poured over them once in a while. They need a dosage of reality from time to time.

"Dramatically" is decidedly an overstatement. Of course the scrap/electric arc method has been around for a long time, but the reason it is most predominant in the developed nations (mostly USA) is that takes a long time for steel scrap to cycle back into the production chain. I am not sure exactly what % of Japanese steel is produced by this method, but since they are the largest importer of seaborne importer of met coal, suffice to say that the economics still largely favor production of steel from pig iron. India, which is projected to be the biggest source of steel demand growth in the next decade, will not be using scrap, that’s for sure.

The near term material risks to the met coal market are China’s slowing growth and restrictive policies regarding the steel industry, and Australia’s rampant production growth. Far out predictions such as the one in your comment are academic at best and wooly headed at worst. in any case, certainly not tradable.

A lot of the tighter regulations on coal were initiated under administrations prior to the Obama admin including both the Bush admin (Republican) and the Clinton admin (Democrat), but their implementation was delayed so long as to fall under the Obama admin.

The point being that you can’t bet Republicans will vote against the regulatory reform. They may choose to stop initiating or implementing new programs (the Obama admin chose to continue increasing legislation against coal) but the chances of them actually changing direction on current programs is close to nil. There will be a mild bump in coal’s favor under a Repub admin but the trajectory will be the same.

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