Coal Stocks: What's Really Going On?

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What's up with coal stocks? More than just slowing in China.

It's a perfect storm for coal stocks:

1) Coal stockpiles are high due to the warm winter;

2) Coal plants are switching from coal to cheaper natural gas.

They're down again today on (overblown) concerns on slower growth in China.

Current coal production is down 15 percent year-over-year, according to Stifel Nicolaus. Coal prices are expected to decline 8 percent on average in 2012-2013 — so some analysts are continuing to reduce EBITDA estimates.

Man, is there any end to this?

Not clear: there is a lot of chatter that prices are nearing a bottom (stop me if you've heard this before), and that closures of coal mines will start to make a difference.

Still, stock prices for the big names — Peabody , CONSOL , Arch Coal and Alpha Natural Resources — remain near multi-year lows.

By the way: this is bigger than coal; weak coal shipments weigh on railroad stocks, for example. Coal carloads for the USA are near 15-year lows, again according to Stifel Nicolaus.

Finally, it seems to me the Street is seriously misinterpreting the comments from BHP that iron ore imports into China will be down into the single digits in 2012. Judging by the reaction of the markets, you would think steel production is collapsing in China.

It's just not true. Yesterday, Morgan Stanley said: "Sentiment in Chinese steel markets is improving as mills gradually raise prices and inventories decline."

Chinese steel production is UP 5.3% month-over-month in February (down 0.3 percent year-over-year). No collapse here!

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