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Sterne Agee Senior Research analyst Mike Dudas on why coal could potentially boost investors’ portfolios in 2013.
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Thank you very much -- -- -- -- with -- you're stocking this year.
We have to use that line.
Well you might be in -- coal stocks have taken a tumble in recent times as we know.
But they could be poised for a comeback in 2013.
-- -- this Sterne -- senior research analyst joins me now.
The total cold Mike thank you very much dominating well it but the industry -- a holding taking a beating we know we'll be probably be this cold weather is helping won't get into a little bit but it.
YT like some of these coal stocks -- when he thirteen.
First book position on the chart just when you put up on the screen gather the stocks have -- -- really difficult twelve but that the stocks have been bottoming trying to make higher lows and higher highs and the stock chart patterns.
-- -- -- discount I believe some better fundamentals and industry.
-- through two major drivers for 2013 one.
The pricing in the direction of natural gas in the United States and secondly which could be more importantly the recovery in China for industrial production steel consumption.
And that would help higher metallurgical coal demand and pricing which is very important just -- get as much gas was so cheap it was ridiculous and actually killed cold but those rights as -- come up a little bit now they have we had in 2012 they fit standard deviation winter -- we just getting normal winter that's -- and increased the amount of -- natural gas consumed.
Increase in electricity and should increase Kohlberg.
The winter go up to -- -- source for offending most bulls would look like the -- but is getting we know it's picking up as well and I think they'll be very health.
But -- mainly bush because of -- demand for US -- abroad you mentioned China that is probably our biggest.
Customer I would imagine but so.
And there are different types of culture should -- get to take down over it's it's it's quite -- -- have school.
Coal used to make electricity.
And in the -- that we sell internationally go to European utilities and Asian and Latin American utilities.
And that we expect to increase over the next few years that may have from rest of the world.
Secondly the metallurgical -- steel making coal.
Which is used in Europe.
Brazil.
And in Asia and we are one of the top three exporters of metallurgical coal the world.
And as a recovery in steel production -- increases in Asia and in Europe and and Latin America that should be better for hard to for demand for our met -- and hopefully pricing.
And it really benefits most of the coal companies that produce that's still prices -- as well it seems seems that way yes it does help com.
The EPA's being tough on the coal industry you said.
-- -- I have an impact.
If has -- -- you know B of a certain the equities were discounting.
Romney's victory that November actually got hit pretty hard of course an ounce box of back to work was -- -- the election.
In my view there's not much more and major harm that the EPA and other regulations can do to coal industry.
But certainly as the economy need to dictates the -- electricity generation -- more confidence.
That'll be more important than to the PV BP's -- -- damage.
For the most part you can never say never -- think most of of the negative news is behind pulled from the -- so have you play this what companies do you like in particular.
So I think that the two areas and we -- but the thermal coal for electricity generation and metallurgical coal for steel.
On the latter.
We look at Alpha Natural Resources which is The Who has -- is the largest exporter of metallurgical coal out of the United States has the most export capacity.
On the thermal side the -- -- looking as you like these prices very -- -- -- -- -- you look -- -- there they've they've come down quite a bit and we do anticipate.
Recovery in pricing over the next will be two months for the commodities.
And -- thermal -- Consol Energy which is also has some very low cost natural gas that's the -- very helpful in this environment and Arch Coal which does benefit from higher natural gas prices for.
Higher prices for a thermal coal in the course and you us about the future of the coal industry with the emissions standards and -- -- you don't have to permits and everything.
Sure does that spell bad news is you have more long term again I think when you look from the peak of coal consumption 2007 to where we are today we've dropped about twenty to 25% of coal consumption US I think that's probably the most.
I think going forward -- be more cyclical.
Demand for mobile.
Utilities will shut down coal plants even that we've seen many announcements so far.
But no matter what happens the US is going to require.
Anywhere from 35 to 45% of electricity from coal in the foreseeable future so.
There's a future for the cold depending on where your coal is and how cheap you can mine it how you can -- -- Will the term success and failure of many of the company but how far -- are we talking when you talk like that well listen I think I think we're gonna see is not a I think it's I think we can see improvements -- the over the next couple years I -- over the next 510 years we'll see.
Cyclical proven but not nearly as much -- from from we've missed ten years ago that they I think TV.
Glory days of coal are probably behind ensure -- levels it's still think there's an opportunity for a likely to hear.
Finally getting a break in the -- let's hope volatility this thank you so much for digital -- -- thank you.
