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.

As the Gulf population soars, demand for electricity has reached crisis point – so much so, they’re being forced to divert valuable oil meant for sale to the West, to domestic use… and it’s hitting their profits.

Nuclear power is the long-term objective… but until then coal will bridge the gap.

And one little-known company is perfectly placed to benefit from this imminent wave of investment…

A power crunch in the Gulf States has been brewing for years – and it’s reaching crisis point.

As their economies rapidly develop and populations soar, demand for power is rising at a double-digit annual rate.

This demand means profitable oil and gas meant for export has to be burnt to generate domestic electricity – instead of being sold on the open market for record prices.

To maximise the profits from their energy resources, Gulf States will go nuclear. Talks have been held with the US and France and deals have been signed.

But here’s the thing…

It takes time to build and develop a nuclear power station, and something needs to fill the gap until then… and, according to today’s Times, it looks like it is going to be coal.

‘King Coal’ to replace oil – a great medium-term profit play

According to the newspaper, oil-rich Gulf States are planning to start importing coal.

Oman Power and Water Procurement Company indicated in December that a planned 700-megawatt power and water desalination plant may need to be fuelled by coal instead of natural gas.

Last summer Abu Dhabi’s oil output fell by 600,000 barrels per day as natural gas was diverted from injection into oil wells to power stations to meet peak demand for electricity.

I’ve been bullish about the price of coal for some time. Despite its reputation as a dirty fuel, there is simply no alternative.

Overnight, two of Canada’s major coal producers announced a large jump in metallurgical coal prices for 2008.

Fording Canadian coal trust settled contracts at $275/tonne for all coal projects, compared with $93/tonne in 2007. Western Canadian Coal negotiated a majority of is 2008 coal year contracts for hard coking coal at an average above $300/tonne, an increase of 365% over 2007.

There has been supply disruption in South Africa because of the electricity crisis, in China because of heavy snow and now the earthquake, with mines in Australia flooded by heavy rain. Indonesia, the world’s biggest coal exporter, says most of its output for 2008 is already sold!

The outlook is pretty clear to me: Demand is higher than ever, supply is squeezed to the brink.

And I believe I’ve found the perfect stock to profit from the return of ‘King Coal’…

Up 17% since October ‘07 and there’s a long, long way to go yet!

I first recommended my readers get into the coal story back in October 2007… Since then it’s risen 17% and I reckon it has much further to go.

Why? Let me explain.

Besides global demand for the “dirty” fuel at record levels, I expect this unique coal profit play to do very well regardless.

You see, unlike its rivals, the company currently generates revenue from two sources – BHP Billiton’s Crinum underground coking coal mine and Rio Tinto’s Kestrel open cut operation, both in Queensland, Australia.

Their objective is to expand its strategic mining and royalty interests through investment in mineral exploration and mining projects. As an active shareholder, it aims to develop an involved relationship with the companies in which it invests and provides strategic and corporate finance advice.

Management leverages its contacts in the mining industry to find suitable investment opportunities, and liaises with an advisory panel to assess the technical aspects of potential future projects.

Cashflow from the existing royalty streams is either re-invested in new mining interests, or paid out to shareholders.

Great for the share price… and even better for dividends too!

It really is a rare gem in a sector that’s had some troubles of late.

Setbacks due to liquidity problems in the overall market continue to make mining finance difficult to raise from conventional lenders.

As a result, this company – with its strong balance sheet and experienced management team – is well positioned to provide finance for projects that can secure new royalty flows and develop its mining interests.

With coal looking set to fill the gap until the new nuclear revolution happens, there’s plenty more royalties to be had.

Management has proven that it knows what it is doing and tightness in credit markets means the company has lots of investment opportunities from which to choose.

Take a three month trial run of Smart Commodities UK and all details of this share will be yours in an instant.

Regards

Garry White
Editor
Smart Commodities UK

Source: Coal Demand Booms, Here’s One Investment to Buy Now