This is what I have been waiting for 1.5 years now. When it suddenly happens, nobody noticed it.
For 1.5 years US coal producers have massively curtailed production to meet lower demand and bring supply/demand back to balance. As a result, US coal stockpile level went from record high in early 2012, to around average in May 2013. Demand also returned to normal level. But US producers continued to curtail production to around 18M to 18.5M tons per week, far below the norm of 21M tons per week.
Yet, in the last three weeks, US producers quietly yet massively boosted production up to near normal level:
July 6: 18.374174M tons
July 13: 19.623170M tons
July 20: 20.013162M tons
July 27: 20.790321M tons
In just three weeks, weekly production went up from the curtailed 18.37M per week level, back up to near normal 20.79M tons per week level, or up 13% in 3 weeks.
Producers have consistently curtailed production amid low demand and low prices in the past 1.5 years.
The only reason producers would boost production, is that supply/demand is finally tipping towards the shortage side, and they get phone calls to ask for extra coal and buyers who are willing to pay higher prices. That's the only explanation why they suddenly stopped production curtailment.
The long over-due coal turn around has finally arrived, indicated by the return to normal production level.
Sentiment: Strong Buy
I am not sure what the increased coal production means.
However, unless I am missing something, the natural gas producers are losing their shirts. For example, DVN devon reported profit of 477 mllion latest quarter. What is harder to find is that Devon had capex expenditure between 1 billion and 1.5 billion. Free cash flow is strongly negative. Further, other expenses such as exploration, leases and royalties don't help their free cash flow.
It appears that NG prices would have to be somewhere in the $6-8 dollar range to have positive cash flow.
Am I missing something???
ALL NG companies LIE about their real financial result. And as you said, they can not hide it in their real cash flow, which is deeply negative.
They lie about two things, one is they exaggerate the long term production potential and thus value of the shale wells. They project rosy EUR figures and long production lifespan like 40 to 50 years. In reality, the shale wells can produce less than half of what they project, and the wells hardly still produce anything after 4 or five years.
Second, using those rosy projections, they completely under-calculate the amortization cost of capital spendings. Like DVN. They spend $1.8B per quarter on capital spendings. But they only amortize less than $700M of the capital cost. If they amortize the costs honestly, they would show a deep quarterly loss.
They can't keep borrowing from banks. They can not hide the truth of deeply negative cash flow for very long. When the NG industry blows up, it is hugely bullish for coal companies.
Sentiment: Strong Buy
It is the seasonality; coal production always ramp up in Q3. At best we can compare weekly YoY increases.
On the other hand I do not want to see any production increase before prices rebound. And I was so angry to see that ACI priced much more than average during Q2 for 2014 ... and they managed to price below the curve (average during Q2)! What is their game plan? Not price anything and wait for prices to recover given that they are now priced 16% more than they usually have at the end of Q2. Very dangerous game ... it backfired with met coal ... I hope it won't backfire with PRB.
Amazing it isn't by a long shot.........but you still blew it..........summer AC is near the hottest time period in the year.......hot weather equals more coal to power plants......your Nostradamus approach failed miserably and you are back on the soap box with this stupidity........wow........just wow........
Sentiment: Strong Sell