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Seaborne Coking Coal: Now What?

Seaborne Coking Coal: Now What? By Steve Doyle/BtuBaron LLC (September 14, 2017) “Please God, grant me just one more price boom and, this time, I promise not to blow it ...” - The Coal Miner’s Prayer - In order to know where we are headed, we must first recognize where we are and how we got here. When commodity prices are unusually high, analysts will sagely state, before returning to their overpriced steak dinners, that the cure for high prices is high prices (and vice versa). As a former commodity trader, I used this brilliance to corner the Big Sandy market when OTC-quality barge coal was selling in the low $20’s – unsustainably below mining & transportation costs. I then learned the next rule of trading: timing is everything! Prices were indeed unsustainably low, but the market did not adjust until the following year and I lost a bundle. An astute entrepreneur could look at mining costs, identify reserves that are in the lower quartile, commit capital and know that his costs will be below most of his competitors and, in the long run, he will be able to sell his coal at sufficiently high prices. Or will he? Maybe an anti-coal administration will force certain power plants to retire. Maybe stricter air quality regulations will force power plants to add SO2 scrubbers and buy cheaper, high sulfur coal from a different region. Maybe the extraction of a competing fuel will undergo a technological revolution and become the economic fuel of choice for electricity generators. The moral to this story is, everything else being equal, high prices is indeed the cure for high prices (and vice versa), but there are so many moving parts, everything else is never equal. [Please click on button to read the rest of the article.]