Eoin Treacy's view These four headlines appeared in yesterday's Mineweb newsletter and highlight the continued demand for coal assets and the increased interest in gaining access to coking coal.

Following the Queensland floods in January, I conducted a review of Australian coal miners in an effort to identify those which would be most affected by inundation as well as to differentiate coking coal from thermal coal producers. That review posted in Comment of the Day on January 13th is now in the public archive for those who might be interested.

Since then, Rio Tinto has completed its acquisition of Riversdale Mining and MacArthur Coal is now the subject of acquisitive interest by Peabody and potentially Citic Group. The trend of consolidation in the industry is clear as companies vie for ownership of coking coal assets globally. MacArthur is the largest seaborne producer of coking coal according to its website.

Thermal coal futures have been drifting since January in a steady reversion towards the mean which has now been completed. They will need to rally from current levels to confirm support in the area of the 200-day MA near $74. Chinese coking coal prices have been ranging with a mild upward bias since 2009 and will need to sustain a move above CNY2000 to confirm a return to medium-term demand dominance. Since coking coal pricing globally is rather opaque, it is unclear as to how reflective of the global picture Chinese prices are. The CME's contract will be a useful barometer when released.

In Australia, Coal & Allied, owned by Rio Tinto, currently yields 8.175% with franking. Following a deterioration since January it has found at least short-term support in the region of A$100 and a sustained move above A$108 would confirm a return to medium-term demand dominance. Gloucester Coal which is also thinly traded and majority owned by Singapore listed Noble Group has a similar pattern of underperformance.

MacArthur Coal surged last week on Peabody's bid and held the advance so far this week. An additional premium may be put on the share if Citic Group also decides to compete for ownership.

New Hope Corp, which mines thermal coal, is a clear outperformer and appears to be in the process of completing an 18-month consolidation. It hit a new high this week and a sustained move below A$5 would be required to question medium-term upside potential.

Whitehaven Coal mines both thermal and coking coal. It pulled back rather sharply in April but found support above A$5 and has rallied impressively over the last months. A sustained move below A$5 would now be required to question medium-term scope for additional upside.

In the USA, Arch Coal's acquisition of International Coal Group has weighed on the share's performance over the last few months but it found at least short-term support in June near $24 and continues to bounce from that level. Provided it finds support above $24 on a subsequent pullback the medium-term uptrend can continue to be given the benefit of the doubt. Alpha Natural Resources has a similar pattern following its acquisition of Massey Energy. Peabody Energy has outperformed since late 2008 but also pulled back sharply from April and found at least short-term support in June near $52.50. It is also bouncing.

Consol Energy experienced less of a pull back and has since rallied back to test the two-year highs near $56. A sustained move above that level would confirm a return to medium-term demand dominance. Patriot Coal has a relatively similar pattern.

Speculation appears to be mounting that Walter Energy will become the subject of acquisitive interest following the resignation of its CEO after only 3 months. The share has been a clear outperformer among coking coal producers in the USA and has at least paused in the region of the 200-day MA following a sharp decline from the April peak. A sustained move below $100 would be required to question medium-term scope for additional upside. There has also been speculation that James River Coal may be the subject of a takeover attempt at some stage, potentially by Patriot Coal. The share does not currently indicate such a move is taking place since it has been largely rangebound for nearly two years.

In the MLP sector Alliance Holdings GP yielding 4.34%, Alliance Resource Partners yielding 4.52% and Natural Resource Partners LP yielding 6.26%, found support in the region of their 200-day MAs in June and rallied impressively. Sustained moves below $44.50, $70 and $30 respectively would be required to question medium-term upside potential.

In the UK, New World Resources yields 4.15% and has posted a progression of higher reaction lows since early 2009 and is at a region where demand will need to reassert itself if the medium-term uptrend is to remain relatively consistent.

In Indonesia, Bumi Resources remains within a two-year base but has held a progression of higher reaction lows since August and appears to be finding support in the region of the 200-day MA. A sustained move below IDR3000 would be required to question this view. Tambang Batubaru Bukit Asam, Banpu Public and Adaro Energy have posted much more impressive uptrends which remain largely consistent. They appear to have found at least short-term support in the region of their respective 200-day MAs and sustained moves below them would be required to question medium-term upside potential.

In China, Yanzhou Coal remains in a consistent uptrend and has been ranging in a gradual reversion towards the mean since April. A sustained move below HK$25 would be required to begin to question medium-term upside potential. China Shenhua Energy has been largely rangebound since late 2009 but has posted a progression of higher major reaction lows for the last year and is now testing the upper side. A sustained move above HK$40 would confirm a return to medium-term demand dominance.

Inner Mongolia Yitai Coal pulled back sharply in June to break the progression of higher reaction lows and the 200-day MA. While it has bounced somewhat since then, a sustained move above CNY7 would be needed to question medium-term supply dominance.

In the Philippines, Semirara Mining produces thermal coal and yields 4.18%. It has been among the best performers nationally and posted an impressive weekly upside key reversal in June having found support in the region of the 200-day MA. It is now testing the high near PHP250 and a sustained move below PHP200 would be required to question medium-term potential for additional upside.

South Africa's Exxaro remains in a consistent medium-term uptrend and continues to hit new highs. It is now somewhat overextended relative to the 200-day MA and would be best bought following a reversion.

In conclusion, the process of acquisition in the global coal sector continues with the majority of shares well supported by underlying trading and possessing solid medium-term upside potential. ETFs such as Powershares Global Coal Portfolio and Market Vectors Coal ETF reflect the return of bullish interest to the sector.


Lumber shares - The controversy over Sino Forest and whether it overstated its timber assets or not continues to rage with some major investors selling out and others seeing this as an opportunity to buy more. The article from Bloomberg has some additional details.

The lumber price remains characteristically volatile but the more than two-year progression of higher major reaction lows remains intact. It has bounced well since the May low and is now testing the still rising 200-day MA. A sustained move below $250 would be required to question the consistency of the short-term advance. Also see Comment of the Day on June 8th.


Most lumber shares pulled back in response to Sino-Forest's collapse even though the vast majority have little or no exposure to Chinese timber assets and as such should not be particularly affected. Rayonier is the only one I know of which was not affected in the slightest. It remains in a consistent medium-term uptrend, defined by an unbroken progression of higher reaction lows. While somewhat overextended relative to the 200-day MA at present, a sustained move below $60 would be required to begin to question medium-term upside potential.

Plum Creek, yielding 4.06%, and Weyerhaeuser yielding 2.71% have both found support in the region of their respective 200-day MAs. Sustained moves below them would be required to question medium-term upside potential. West Fraser Timber has been more volatile over the last month but also appears to have found support in the region of the MA. Universal Forest Products had a deeper reaction but has rallied impressively over the last two weeks. Potlatch remains largely rangebound.


T he Chart Seminar 2011 - The November dates for The Chart Seminar are more than half full following a sell-out tour to Sydney & Singapore and a successful start to our London series in May.