Coal: Will It Make a Comeback?

July, 31, 2014

If you are a subscriber to my newsletter, The Technomental™ Commodity Report or a listener to my radio show, The Commodities Hour, you will know that I have been chirping up a contrarian view to the Coal Market since the spring.

The price of coal has been under pressure for years. New regulations that came into effect in July will basically finish coal in the US, but these restrictions are reflected in current prices. Coal is often used in cogeneration for the production of electricity. When it comes to electricity power plants they can use various types of fuels. Oil, natural gas, coal and nuclear energy are the most popular. And, since the nuclear disaster in Japan the Germans have closed most of their nuclear plants. Coal is a ‘dirty’ fuel as it produces pollution and is not as clean as other fuels like natural gas and nuclear energy. The current worries over the availability and cost of Russian natural gas in Germany and Europe could give a boost to coal prices which remain historically cheap. Given the war of words with the Russians and the fact that Western Europe relies on Russia for much of their natural gas supplies I am still looking for a rally in the price of coal, this is a contrarian play. Technology is another fundamental factor contributing to my view. The liquefaction of metallurgical  coal could make it a viable and clean fuel in the future.

The technical picture here is a clear one.  A three year down move with a double bottom forming over the last twelve months.  7-28-14-kol-rsi-bullish-div

Chart Credit: JC Paretz of All Star Charts

 

The last 4 months have been consolidation in the form of a triangle and we have seen a breakout over the last week.

7-28-14-kol-daily-bars

Chart Credit: JC Paretz of All Star Charts

It seems like everyone in the world is bearish on coal…..but the Technomentals™ could be ripe for a contrarian play.

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