Is the Coal Market Heading For a 2013 Rebound?

CHEAT SHEET Analysis: A strong case for coal bulls

Consensus among coal bulls was that demand growth in these economies would fuel a resurgence in coal stocks as the major industry players exported product, and good news out of China is just what investors were waiting on. Not only is the PMI up by a significant amount, HSBC’s chief economist for Greater China comments: “Such momentum is likely to be sustained in the coming months when infrastructure construction runs into full speed and property market conditions stabilise.”

HSBC expects China’s GDP to grow 8.6 percent in 2013. A low level of export orders suggest that domestic demand in the manufacturing industry in China is strong, further validating the idea China will become hungry for coal imports. More and more reports indicate that China’s infrastructure investment will pick up pace next year. China has approved up to 800 billion yuan ($128.40 billion) in new roads, waterways, ports, and sewage treatment centers, which translates into a huge demand for iron ore and metallurgical coal.

And the buck doesn’t stop with China. In November, India’s PMI hit a five-month high of 53.7. Brazil’s PMI also picked up substantially for the month and hit 52.2, despite some weakness in the overall economy. As the global economy recovers heading into 2013 — world-wide GDP growth is expected to increase from 2.4 percent in 2012 to 2.7 percent in 2013, and 3.2 percent in 2014 — a lean, efficient coal industry will be ready to jump on the opportunity to capitalize on new demand.

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