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China Flush With Coal, Possible Pricing Weakness for Peabody (BTU)

Posted on | November 4, 2008 Time: 3:42 am |

News out of China today is that quotas for coal exports were higher than expected at 15.9 million tonnes, putting the export quota total for the year above 47 million tonnes. While Chinese officials say that it’s too late in the year to put the quotas into effect, the news does reflect that China isn’t converting to a net importer of coal just yet. They appeared to be right on the precipice earlier in the year, but the recent post-Olympic slump has allowed domestic inventories to rise.

While a few million tonnes isn’t enough to shift global supply dynamics, is does hint at possible stockpiles building up elsewhere in the developing world. Peabody Energy is a big player in the international markets, and while most of 2009’s production is already contracted, the bit at the margin is leveraged towards what it saw as “growth markets”, and most of these markets have been ravaged in recent weeks.

Longer-term, Peabody’s fortunes will be determined by how fast the roughly 300 gigawatts of coal-fired electric generation being constructed around the world will be completed. The global credit crunch has slowed down countless budgets and capital spending plans, but recent liquidity injections should begin to make their way into the financials and outward.

Ryan Barnes

disclosure: author does not hold positions in the companies mentioned.

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