Mr. Khani: We've been following coal stocks and markets since 1993 and coal has been a tough place to invest in. There was a limited universe and oversupply overhang for quite a while; as a result, coal prices only went down. But basically toward the latter part of 2000, coal supply had come down and demand had continued to creep up. Thus supply and demand curves finally crossed, sending prices materially up for the first time in 15 years. As a result, private companies or subsidiaries went public and it became a really investable space by 2002. The total market cap of these stocks was about $10 billion in 2002 even though they represented about 50% of the US electric generation supply; now the group market capitalization is approaching $100 billion and most of that is pure stock price appreciation.
TWST: Where do we go from here?
Mr. Khani: We think the stocks are going to be another double in the next 12
months, because coal prices continue to rise. We expect demand to outstrip
supply by 1%-2% per year as global demand accelerates to 6% per year and the
supply runs 3%-4%.
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