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Arch Coal Inc. Message Board

  • cadmium_telluride cadmium_telluride Jul 18, 2013 11:32 AM Flag

    Purge of US Coal Stockpile Precedes Start of Super Rally

    Since the low of April 2012, natural gas price has doubled, and power demand has shifted back to coal. The US coal stockpile has dropped from a record high, to now at the same level in the same month of 2011, which is a normal stockpile level. Producers continue to curtail production while demand has recovered to near normal level. This all suggest that things are turning around and coal price should go up.

    Yet since June 2013, coal prices have seen a rapid collapse steeper than even what it did leading to the early 2012 stockpile build up and natural gas glut. Why coal price acted counter-intuitively?

    What happened is a final inventory purge process. It goes like this: Some one, for one reason or another, dumped coal inventory into the market causing prices to move lower. When the price moves lower, for every one who holds inventory, it means the value of their inventory drops over time. Thus to avoid loss, any one holding inventory are eager to sell as soon as possible. As price moves lower, potential buyers also tend to hold off purchase as long as possible for a better price to buy. Thus the inventory is rushed to the market why buyers stays away, causing price to drop even further and faster. This is a positive feedback loop.

    But as that positive feedback purges the inventory in the supply chain, eventually the inventory drop to such a low level that there is nothing more to purge. People begin to decide that the price can not fall further and they begin to hold back their inventory. Seeing the price stops dropping, potential buyers in waiting then rushed back to actively purchase. This starts the OPPOSITE positive feedback: as price goes up, people refrain from selling and buyers rush to buy before price goes even higher. That will quickly push price up as fast as it did on the way down.

    So folks, the recent price plummet and quick inventory purge means we will NOT have a stretched out bottoming. Instead it bottoms and then powerfully rallies higher.

    Sentiment: Strong Buy

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    • I told you exactly what was happening in July. The sudden surge of US coal shipment recently, as reported by EIA, confirms what I said then. Mid July was the start of super coal cycle.

      Sentiment: Strong Buy

    • Some one just asked the question why PRB coal price is not rising, even though coal inventory has dropped to normal level. I explained things before that the price has not been rising yet due to the inventory purging that is still going on. It's like a pendulum movement, the further you move to one extreme, the longer it takes for the pendulum to stop and start to move the other way, and once it does it will move to the other side with much stronger force.

      This is a more extreme coal cycle than any of the previous ones. So the price would not start to move yet just because inventory has dropped back to normal level. It will have further to purge and deplete the inventory even further and more thorough, continue on to push coal inventory down to a record low, and then we will have an non-precedent coal cycle movement towards a record high coal price soon.

      Hold to your coal shares firm. You do not want to lose the opportunity to make big money in this record super cycle of coal. With oil peaked, and natural gas from shale way over-hyped, coal will soon be an even more powerful king of fossil fuels, because it is the only abundant fossil fuel left.

      Sentiment: Strong Buy

    • The point is in any supply/demand situation, the inventory in the supply chain acts as an adsorbent of price shocks. When the inventory in the supply chain is high, it prevent rapid and volatile price movements.

      But as price keeps moving lower, the supply chain hurts, as any one holding inventory is losing money merely due to the price moving lower. Thus middle-man is squeezed to sell and get out of business, depleting the inventory in the supply chain.

      When you have no more inventory in the supply chain, the end result is a sudden, violent movement up, since there is no more inventory to absorb the volatility. This is what's happening in US coal right now.

      Hold on to your coal shares, folks. We are in for a huge sudden rally.

      Sentiment: Strong Buy

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