But coal stocks, on the other hand, continue to appreciate in value. That’s why I feel that every Taipan reader (like you) needs to own some upside exposure to the coal sector. Today’s Chart of the Day offers you a look at one stock pick.

According to the U.S. Department of Energy, China and India will account for 70% of the world’s coal consumption increases over the next two decades, and this demand is not about to stop anytime soon. Roughly 66% of the world’s coal is used to fuel electrical plants, and the remainder goes into steel and concrete production.

That makes coal a global play on energy and infrastructure.

That’s why I like Fording Canadian Coal Trust (FDG:NYSE). It’s enjoyed current coal contract rates running as high as $275 per ton — compared to the $93 per ton it charged in 2007. This incredible year-over-year coal price increase makes it easy to predict that shares of FDG will hit $100 by Q4 of 2008.

Bryan Bottarelli, Bottarelli Research

Source: Weak Markets? Not for Coal Stocks 

Currently, two-thirds of the world’s coal is used to generate electricity. The rest goes into steel and concrete production.

The US Department of Energy says China and India will account for 70% of the increase in world coal consumption over the next two decades.

And consider China’s plans for the next five years… they’re planning to build the equivalent of ten New York Cities, said a Canadian chief executive and financier at the mining conference I attended yesterday!

This will need unimaginable amounts of coal for steel production, concrete production and energy generation.

China used to be the largest coal producer in the world, but it is now a net importer. As the communist Republic continues to develop, it will have to import more and more coal. There are no realistic alternatives.

And that will continue to boost the coal price. It’s great news for one brilliant investment. More on that in a moment.

Two more UK coal power stations planned

Most governments have accepted that coal will have to play a big part in their future energy strategy.

Why? Because most of them have been useless in sorting their energy strategy out. This is particularly true in the UK.

France puts us to shame. The country gets 79% of its electricity from nuclear power; which is way ahead of anyone else in the nuclear stakes.

We still do not know for sure if any new nuclear power stations are going to be built – and it takes years to bring one into operation.

However, we do have plans to build our first coal power stations in 20 years. And it’s not just one – but two. And they’re being built by the Germans – even they are ahead of us in the nuclear stakes!

In March 2007, RWE Npower submitted proposals to spend more than £1bn to replace its existing coal-fired station at Tilbury in Essex. The plant would be operational by 2013. E.ON also hopes to replace its plant in Kingsnorth, Kent, by 2012.

Coal will bridge the energy gap as the oil price soars

It’s cheaper and less technologically challenging to build a coal-fired power station than a nuclear facility. This means coal will be attractive in developing countries too.

The American government has also been slow in resurrecting nuclear power as an energy option in the US.

This situation has been repeated all over the world, and I have no doubt it ensures coal’s continued bull-run over the next 10 years.

The US Energy Information Administration forecasts world coal consumption will double between 2003 and 2030. Non-OECD countries account for 81% of this increase.

So, coal is by no means the fuel of yesteryear – it will be around for a long time to come and demand is likely to soar.

If you haven’t got exposure to a coal producer in your portfolio, you need to think again

Here at Smart Commodities UK we’ve been invested in this trend since last October and it’s already showing a tidy gain.

But I believe there are much more gains to come.

You see, this company uses royalty streams (which are now rising) to invest in early-stage mining companies with a view to generating more royalty payments.

The board has proved this strategy works. Between 2002 and 2006 the group achieved a compound annual growth rate on its investments of 76% – this was before the recent surge in coal prices and the increased royalty payment news.

And just this morning they reported that from 1st July 2008 a two-tier coal royalty rate would now apply to its assets in Queensland.

The current 7% royalty rate will apply to the value of coal produced by a mine sold below $100 per tonne and a higher 10% rate will apply to the value of coal sold above $100 per tonne.

In April 2008, coking coal prices rose sharply to between US$250 and US$300 per tonne… so it looks likely that all payments from now on will be made at the 10% rate instead of 7%.

It goes some way to explain why analysts at brokerage firm Numis have upped its price target of this share by 12.5%.

The company also pays a dividend. A payment of 4.35p per share was approved in April. This fact makes the company virtually unique on the London Stock Exchange.

You get exposure to early-stage mining opportunities, paid for by rising coal royalty payments AND a dividend stream as well.

I’m encouraging my readers to buy this stock immediately.

Find out how to access these details here.

Regards,

Garry White
Editor Smart Commodities UK

Note: Past performance and forecasts are not a reliable indicator of future results.

Source: Coal Price Guaranteed to Soar

So it follows that as worldwide demand for electricity skyrockets – as it will – the shares of companies that provide these two key fuels also will take flight.

And they make for almost-perfect partners.

That’s because coal represents the world’s short-term solution to the problem of a rapidly climbing global demand for power. It’s plentiful, it’s cheaper than other available alternatives, and a big percentage of the world’s power plants are set up to burn this fossil fuel.

Uranium, on the other hand, represents the long-term solution to potential fuel shortages – and it offers a solution to global warming, to boot. Uranium-powered commercial nuclear plants are cheap to operate, can run a long time, and when operated correctly cause little pollution.

The New ‘Black Gold’

India, a growing economic and industrial power, relies on coal for nearly 70% of its total energy supply. And the World Coal Institute expects India’s energy consumption to rise by as much as 8% to 10% annually through 2020.

Coal also is used to satisfy the Red Dragon’s energy appetite, providing 78% of China’s total power needs. Coal demand in China jumped nearly 9% last year – meaning the Eastern power now accounts for a full quarter of the world’s annual coal consumption, The Wall Street Journal reported.

Five years ago, China exported 83 million metric tons more coal than it imported. But last year, the nation’s surplus dropped to a meager 2 million metric tons. That means more than 80 million metric tons of coal (about 12% of the internationally traded market) has been taken out of global circulation.

Vic Svec, a senior executive at Peabody Energy Corp. (BTU), the world’s largest private-sector coal producer, referred to China’s ability to influence the price of commodities as a “butterfly effect.” In other words, Svec told The Journal, “demand from Beijing can ripple back to Queensland, Australia, or Gillette, Wyoming.”

Svec’s right. China’s recent development is part of the reason the highly desirable low-sulfur coal from the coal-laden Powder River Basin in Wyoming and Montana has climbed from less than $10 a ton last year, to nearly $15 a ton – a price gain of 50%.

Central Appalachian coal, the benchmark grade widely used by power plants, jumped from $40 a ton in early 2007, to nearly $90 a ton now, according to a recent report by the Associated Press. That’s price increase of 125% in just a single year.

Meanwhile, the weekly index for power station coal prices at Australia’s Newcastle port, a benchmark for the Asian market, averaged $126.45 per metric ton in the month of April, up nearly 40% from January. The port’s weekly price index rose to $133.63 per metric ton for the week ended May 9 – an 11-week high according to the globalCOAL NEWC Index. The index is up approximately 49% this year.

According to the Energy Information Administration, world coal consumption could expand by 74% from 2004 to 2030. And that will only drive prices higher.

While demand for coal is at an all-time high, the same can’t be said for coal supplies. Harsh weather conditions and infrastructure constraints in coal-producing regions have severely crimped supplies.

In South Africa, power shortages and flooding have closed down several key mines. With such setbacks, the price of coal coming out of South Africa’s Richards Bay Coal Terminal, the world’s largest, jumped nearly 90% last year.

Xstrata PLC, the world’s biggest exporter of power-station coal, said that first-quarter coal output fell 3.6% after floods and rain delays diminished supplies from Australian mines. Monsoon rains throughout the region also impacted archrivals Rio Tinto PLC (RTP), and BHP Billiton Ltd. (BHP).

Meanwhile, China, a leading producer and consumer, was devastated just a few months ago by the worst blizzard of the past half-century. Three weeks of snowfall killed at least 60 people and cost the country approximately $7.5 billion.

China had already closed a multitude of coalmines in 2007, after they were deemed unsafe. The subsequent weather problems only exacerbated that situation, forcing the closure of a great many more mines and prompting China to restrict exports. Major roads and railways also were shut down, creating traffic congestion during the thickly traveled Chinese New Year – and making deliveries highly problematic for drivers.

As the cold of winter gave way to the higher temperatures of spring and summer, yet another weather-related challenge emerged. This time around, the double-whammy of higher-than-expected temperatures coupled with sparse rainfall are straining thermal power plants: The warm weather is boosting the use of energy-intensive air conditioning even as those same higher temperatures have dropped the water level of the rivers that spin the huge power-producing turbines at hydroelectric dams.

If you’re looking to play surging coal prices, Money Morning Investment Director Keith Fitz-Gerald suggests taking a look at Yanzhou Coal Mining Co. (YZC). The China-based Yanzhou is nicely diversified in several ways:

• First, it not only operates underground coalmines, Yanzhou also operates a railway transportation network for shipping coal.
• Second, Yanzhou’s focus on low-sulfur coal products means it finds demand from large-scale power plants and from metal-producing companies all around the world. The reason: Low-sulfur coal can be combined with coking coal in a metal-production process known as “pulverized coal injection,” or PCI. That combination gives Yanzhou a nice extra bit of industrial diversification.
• Third, investors can add geographic diversification to the profit mix as they analyze sector plays.

Provided with these positives, it should be no surprise to investors that Yanzhou’s first-quarter profit more than doubled, climbing more than 112% on surging demand for the fuel and on the higher trading prices seen in the markets around the world.