The Death of King Coal
Virtually all of the research you receive are about stocks you should buy. This report is about stocks you should sell….with both hands as fast as you can.
It is perhaps the most important data release of the last several years that no one noticed. As a result, one of the best shorting opportunities in years is rearing its ugly head.
US coal production hit a 41-year low in 2020. Coal as a percentage of US power output has plunged from 28% to 10% over the last decade to only 437 million short tons. Total coal production has plunged by 64% during this time.
The end result will be a massive shift of wealth out of the major coal-producing regions of the US in the east.
If energy has a proverbial buggy whip maker, it is king coal. And while US coal production has been in free fall, alternatives have been rising sharply, especially solar, now accounting for 20% of US energy consumption.
The implications for the US economy are enormous. I used to be kept awake at night by the wailing whistles of Union Pacific (UNP) engines delivering Wyoming coal to California ports for shipment on to China. They have all disappeared.
Those trains are now moving oil south from Canada and North Dakota to the oil distribution hub in Cushing, Oklahoma, or even all the way to Gulf ports, except that this time they are using a North/South rail line like Norfolk Southern (NSC) rather than the East/West running Union Pacific. Clearly, there are consequences.
In recent the last year, the few listed coal names left have enjoyed a nice rally. This is because of the generalized global “RISK ON” move that has unfolded since the pandemic peaked. The Van Eck Vectors Coal ETF was shut down in 2020 for lack of interest.
It also helps that the incoming Biden administration is unlikely to hammer away at China on trade front as did the previous one. China is far and away the world’s largest buyer of coal.
I believe that in the coming years, the entire US coal industry will go bankrupt and get purchased by the Chinese for pennies on the dollar, or for their outstanding debt alone at a big discount. Needless to say, this makes the entire sector a great candidate for a core short.
Coal is hopelessly uncompetitive with natural gas. Burning gas produces a fraction of the carbon dioxide of coal, and alternatives like wind and solar produce none whatsoever. Coal faces onerous environmental regulation, which will almost certainly get worse under a future administration. US utilities are therefore closing coal-fired power plants as fast as they can.
The outgoing administration was the most pro-coal one in American history. Yet, not a single new coal-fired was built during their reign.
However, coal-dependent communities are not about to turn into ghost towns. They have the great advantage of offering some of the lowest operating costs anywhere in the country. Free rent is becoming common. You'd be nuts to start a new business in the San Francisco Bay Area these days, which has become a haven of the wealthy.
Throw in some decent broadband and they can handily join the global economic community. Yes, you can turn coal miners into programmers, at least the young ones. They all grew up playing video games just like the rest of us.
I Don’t See Any Future in This, Do You?
