The supply of metallurgical coal has yet to satiate Chinese steelmakers’ appetites, and the shortage gives coal producers leverage while attracting investors to met-coal companies, says Jeremy Sussman, a senior analyst at Brean Murray Carret & Co., LLC.
“We think that global metallurgical is going to be in short supply for the foreseeable future,” Sussman said. “China has had the biggest impact in terms of patterns of change recently. In 2008 China accounted for just about 2% of the global seaborne coal market in terms of imports. This year, they are on pace to be somewhere in the 15%-plus, maybe 20% range of total seaborne imports.”
Australia and the U.S. account for about 75% of the seaborne market for met coal. However, Australia lacks the infrastructure to fulfill rapidly growing demand, and logistical complications in the U.S., including EPA regulations and Western mines’ lack of access to ports, will keep exportable production low, Sussman says. As a result, coal producers will have the upper hand in negotiations with steelmakers.
Alpha Natural Resources (ANR), the largest U.S. met-coal producer, is his top pick, Sussman says, adding, “Alpha’s trading is just about five and a half times 2011 and actually above five times 2012 estimates, which, given our view on the global tightness of this particular commodity — metallurgical coal, that is — frankly, we think investors buying Alpha here are still getting a very nice bargain at those levels.”