Profit from coal's rebound

Demand for coal has slumped recently, with prices down sharply. But things are not as bad as they look, and there are good reasons to believe that coal has reached a bottom. Eoin Gleeson investigates the sector, and picks the best way to play the rebound.

Everyone knows China cooks the books. Ever since Beijing decided that the economy must maintain an official growth rate of 7% to stave off social unrest in the wake of the 1997 financial crisis, economists have maintained a healthy disrespect for the government's growth data. Still, when those economists picked up on a catastrophic collapse in China's electricity output in November, it was a real shock. A fall of 6% for the year, from annual growth of 15%, raised fears that China had slipped into outright recession. Had Chinese industry suddenly suffered a complete meltdown?

One group, however, was entirely unsurprised by the reports Australia's coal miners. With heavy industry grinding to a halt in China, it had been months since Queensland's coal terminals had received anything like a steady stream of traffic. There were no ships docking for coking coal to meld the steel girders of China's skyscrapers. And no ships loading up with thermal coal to fuel Japanese power stations. Australia's coal miners were bracing themselves for some very ugly contract negotiations with their trade partners in the months ahead.

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Eoin came to MoneyWeek in 2006 having graduated with a MLitt in economics from Trinity College, Dublin. He taught economic history for two years at Trinity, while researching a thesis on how herd behaviour destroys financial markets.