Four stocks to benefit from the soaring cost of coal

published 18 September 2007

In Asia, coal and coal stocks are "piping hot", says Assif Shameen in Barron's. Almost two-thirds of Asia's power plants run on coal and new Asian plants "are being fired up every other day". Demand in Asia, particularly China, has never been so strong, according to Helen Wang of DBS Vickers. Asia is soaking up supplies across the Pacific region, and is increasingly looking to South Africa and Canada to meet its needs, as Reuters.com points out. China, which already consumes more coal than Europe, the US and Japan combined, has become a net importer. Given all this, it's no wonder that regional coal prices have doubled in three years, and analysts are pencilling annual price rises of 8-10% over the next three years, says Shameen.

There is scope for further gains of around 40% for both Hong Kong-listed China Shenhua Energy (1088:HK), and China Coal Energy (1898:HK), reckons Thomas Wriggleworth of Citigroup. But Lawrence Lau of BOC International points to a cheaper option: Yanzhou Coal Mining (1171:HK). This stock is on a 2007 p/e of 21 with earnings expected to grow by 30% this year. There are options beyond China too. One solid bet, according to UBS's Wei Ouyang, is Straits Asia Resources (AJ1 SG), a Singapore-listed group with mines in Indonesia, currently the world's number one coal exporter.