Coal Trader, seems like capitulation in coal stocks today, please check my math/investment thesis. I look here, and API 2 futures are increasing https://www.barchart.com/futures/quotes/ITFZ22/futures-prices?viewName=main but CEIX and WHC stocks are down today. Please confirm this is good strategy for buying the dip?
Other links for coal price futures that I have found:
Thanks! Just saw what you posted on twitter today. I'm trying to learn how to fish here, looking to get self sufficient on looking at future price curve. Futures are up and coal equities are down, seems like an opportunity to me.
Something I have been looking at recently, is there signal value in looking at the Chinese coal equities? For example, the coal equity ETF (https://finance.yahoo.com/quote/515220.SS/history/). The ETF topped last Sep when/before US coal equities topped and bottomed mid Nov before US equities. To my untrained eye, it is still in an uptrend if the 2.3 level holds.
They are a mine-mouth contracting miner - so they don't own the mines or have any rights to the land/property. They simply get paid to mine coal for utilities at surface coal/lignite miners which are adjacent to the power plant which is it's sole consumer for the produced volumes.
I haven't really modeled them out, but during the wave of coal plant retirements of the last decade, many of their operations were closed. Any mine-mouth operations still running today are probably doing very well because many of the constraints (labor, and logistics) are not that big of a deal at these operations. The coal is remarkably cheap for the power plant and I'm assuming they're running full out as a result. Mine-mouth contract miners typically get paid on a "cost plus" contract. So they get all of their planned expenses covered and make an additional profit on every ton produced for the power plant.
The global average cost of high quality met coal has moved from $150/mt to approximately $225 or $230. Therefore, if the global avg is $225, for example, in a recession we could expect prices to go as low as $175. This compares to the previous cycle where the global avg was $150 with a $50 swing on either side of that figure. Another major difference this time around, and it’s a characteristic of a market in general deficit, is that during periods of high demand, the upside volatility is greater than a $50 band. As we’ve seen, we can expect supply shortages to cause prices to run all the way to $500 or higher.
So if the long term floor to avg is $175 to $225/mt on the Australian coking index, this probably translates to about $200 to $250/mt on US East Coast Indexes... which then netbacks to about $160 to $185/t at the mine for US producers.
So you’re saying AMR and ARCH are still extremely undervalued here… and still essentially cash positive. And still printing in q3. Also, do you have a back of the napkin estimate for CEIX earnings for 2023 and rest of 2022? Asking for a friend.
Subscriber here. Thanks for your excellent work and congratulations on avoiding most of the damage. How do you feel about BTU? I’m heavily weighted into WHC and CEIX with a smaller position in THUNG but carrying BTU opposed to ARLP.
I feel like although BTU has a lot of thermal that deserves a re-rate higher, BTU suffers from surety bond covenants which does not allow them to issue any dividends or buybacks. Therefore, they're way behind their peers on shareholder return and will suffer as a result. WHC is doing massive buybacks, Thungela is doing massive dividends, and CEIX has incremental tonnage to take advantage of the hot markets in '23 - they're also super cheap and they'll announce their own shareholder returns very soon, most likely.
ARLP has 18-20 million tons unpriced in '23 and they will probably get 2x the price in '23 vs '22 for those same tons. ARLP also does a lot of divy's being an MLP and they'll do more as they enjoy super wide margins. I like ARLP over BTU here. Also, BTU has met exposure which complicates things as we head into a recession... so ARLP is safer than BTU.
Glencore up, US thermal stocks down....absurd
Coal Trader, seems like capitulation in coal stocks today, please check my math/investment thesis. I look here, and API 2 futures are increasing https://www.barchart.com/futures/quotes/ITFZ22/futures-prices?viewName=main but CEIX and WHC stocks are down today. Please confirm this is good strategy for buying the dip?
Other links for coal price futures that I have found:
https://www.barchart.com/futures/quotes/IFFZ23/futures-prices?viewName=main
https://www.barchart.com/futures/quotes/LUZ22/futures-prices?viewName=main
https://www.barchart.com/futures/quotes/U7Z22/futures-prices?viewName=main
Yes.. there will be a time to pick a bottom before earnings, just not sure when. This feels like capitulation - or close to it.
CT let us know when the time is right to load up on the coal stocks.
Thanks! Just saw what you posted on twitter today. I'm trying to learn how to fish here, looking to get self sufficient on looking at future price curve. Futures are up and coal equities are down, seems like an opportunity to me.
Something I have been looking at recently, is there signal value in looking at the Chinese coal equities? For example, the coal equity ETF (https://finance.yahoo.com/quote/515220.SS/history/). The ETF topped last Sep when/before US coal equities topped and bottomed mid Nov before US equities. To my untrained eye, it is still in an uptrend if the 2.3 level holds.
Is there an inverse to SMH that you like? I know of SOXS, FNGD, SQQQ
Yes.. I am short SOXL right now, but going long SOXS is a good alternative to that.
CT what is your view on Met Coal cos ARCH & AMR, still hold till Q2 results or are they a longer term hold?
Is there an opinion or take CT has on Nacco Industries?
They are a mine-mouth contracting miner - so they don't own the mines or have any rights to the land/property. They simply get paid to mine coal for utilities at surface coal/lignite miners which are adjacent to the power plant which is it's sole consumer for the produced volumes.
I haven't really modeled them out, but during the wave of coal plant retirements of the last decade, many of their operations were closed. Any mine-mouth operations still running today are probably doing very well because many of the constraints (labor, and logistics) are not that big of a deal at these operations. The coal is remarkably cheap for the power plant and I'm assuming they're running full out as a result. Mine-mouth contract miners typically get paid on a "cost plus" contract. So they get all of their planned expenses covered and make an additional profit on every ton produced for the power plant.
CT - what rule of thumb long term (LOL!) met coal price do you think can be used for US met coal producers?
The global average cost of high quality met coal has moved from $150/mt to approximately $225 or $230. Therefore, if the global avg is $225, for example, in a recession we could expect prices to go as low as $175. This compares to the previous cycle where the global avg was $150 with a $50 swing on either side of that figure. Another major difference this time around, and it’s a characteristic of a market in general deficit, is that during periods of high demand, the upside volatility is greater than a $50 band. As we’ve seen, we can expect supply shortages to cause prices to run all the way to $500 or higher.
So if the long term floor to avg is $175 to $225/mt on the Australian coking index, this probably translates to about $200 to $250/mt on US East Coast Indexes... which then netbacks to about $160 to $185/t at the mine for US producers.
So you’re saying AMR and ARCH are still extremely undervalued here… and still essentially cash positive. And still printing in q3. Also, do you have a back of the napkin estimate for CEIX earnings for 2023 and rest of 2022? Asking for a friend.
If met softens but thermal remains strong, are the met producers well-positioned to supply crossover tons?
Subscriber here. Thanks for your excellent work and congratulations on avoiding most of the damage. How do you feel about BTU? I’m heavily weighted into WHC and CEIX with a smaller position in THUNG but carrying BTU opposed to ARLP.
I feel like although BTU has a lot of thermal that deserves a re-rate higher, BTU suffers from surety bond covenants which does not allow them to issue any dividends or buybacks. Therefore, they're way behind their peers on shareholder return and will suffer as a result. WHC is doing massive buybacks, Thungela is doing massive dividends, and CEIX has incremental tonnage to take advantage of the hot markets in '23 - they're also super cheap and they'll announce their own shareholder returns very soon, most likely.
Really appreciate the insight. Thanks!
ARLP has 18-20 million tons unpriced in '23 and they will probably get 2x the price in '23 vs '22 for those same tons. ARLP also does a lot of divy's being an MLP and they'll do more as they enjoy super wide margins. I like ARLP over BTU here. Also, BTU has met exposure which complicates things as we head into a recession... so ARLP is safer than BTU.
niiice. I've "went rogue" and started accumulating ARLP even though you haven't mentioned it in a long time.