Long-Term Coal Outlook Still Positive

Written by Luke Burgess
Posted November 14, 2018 at 3:41PM

The Chinese were the first civilization to start using coal.

And by the looks of things, they'll also be the last to stop.

Archaeological evidence shows coal being used in China over 6,000 years ago.

The black rock was key in enabling the Chinese to develop sophisticated economic, political, and cultural systems. And it continued to fuel China for millennia. But things are changing...

Public pressure to reduce carbon emissions has increased in the past few decades. And as a result, China has made many efforts to cut its addiction to coal over the past few years.

The country has invested heavily in renewable energy. In fact, from 2010 to 2012, China's renewable electricity growth was double that of the U.S.

China put caps on power plant emissions through carbon credits. It increased regulations on carbon emissions from vehicles. Some of its standards on heavy trucks are the most stringent in the world.

China has, in fact, done a lot to curb its coal use. But despite the country's many efforts, China's consumption of coal is still set to increase over the next decade.

China's Coal Addition

It's estimated that China will consume 3.4 billion metric tonnes of thermal coal this year.

By 2027, the demand for thermal coal is expected to reach 3.5 billion metric tonnes.

Now, that's not a huge increase in demand. But it clearly shows that China isn't ready to stop using coal quite yet — despite all its efforts.

The fact of the matter is this...

Coal-fired power is still the cheapest and most easily available option for many local governments. It always comes down to money.

As a result, more than 65% of China's power is still generated by coal.

China has an insatiable thirst for coal. And even though the country is also one of the world's largest coal producers, it has one major problem with its product...

The coal in China is low quality.

Know Your Coal

Coal formation began during the Carboniferous Period, which occurred 360 million to 290 million years ago.

The buildup of silt and other sediments, combined with movements in the Earth's crust, buried swamps and peat bogs under the earth. The plant material was subjected to high temperatures and pressures, which caused physical and chemical changes that would eventually transform it into coal.

Initially, peat is converted into what's called lignite, otherwise known as brown coal or soft coal. This is the type that's most common in China.

Brown coal is worth less than dry coal because it doesn't burn as hot or as cleanly.

So, even though China is a major coal producer, it still needs to import high-quality coal.

And it needs a lot of it.

Fortunately for America, we've got it.

In fact, China is on pace to buy 89 million tons of coal from America this year.

And it recently agreed to order even more.

Christian DeHaemer, investment director of Crisis and Opportunity, says:

We've got China on this one. It will need to continue purchasing millions of tons of coal from the United States — trade war or not.

That could mean great news for America's coal industry and for today's investors.

DeHaemer says:

The coal industry is suffering from public image. It's dirty. It's ugly. But the reality is China absolutely still needs coal to keep the lights on. As a result, the coal market will remain healthy in the near term.

There are 1.3 billion people currently without electric power in the world. And they want refrigerators and TVs just like everyone else.

There's a true growth trend in coal right now. It's one of the most undervalued commodities in the world. And there's a solid case to be made that coal will be one of the best-performing assets over the next 10 years.

Good investing,

Luke Burgess Signature

Luke Burgess
Contributing Editor, Park Avenue Digest

follow basic@Lukemburgess

As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bubble and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets.

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