So at this point. I am not going to make a timing call. I am unable to predict when they will finally notice the coal price, and realize that they need to cut production to return the market supply demand to normal. Until they do so, coal investment is going to suffer. There is no light at the end of tunnel, UNTIL and UNLESS they start to do something to remove the excessive supply.
I am not going to sell my shares at $1. I will hold on, whether these coal companies all go bankrupt or not. I still believe economy 101 will return to work, and coal price will return to normal. I just do not see what will finally get their butts moving in the right direction.
Same is true, and even more so, in the shale oil and gas industry. They plunged more than three trillion dollars of investment money in the shale development, even since the start of the so called shale revolution. They have not yet seen a single penny of investment return for the three trillion dollars of wasted money. When do they run out of the foolish money?
When do basic economy 101 rule return that smart money chases where profitability is? It is surely not In the shale sector. Is three trillion dollars wasted not enough?
I thought coal as a a commodity sector should always be cyclic. Basic economy 101 of supply demand should dominant. When supply is too high, price drops and producers cut production to return to balance. Vise versa, when supply is tight, price goes up and producer increase production to balance with demand. Of course the consuming sector also will do their part to respond to price signal.
I was wrong. The economy 101 has broken down. For three freaking years, the entire world shut their eyes blind and gives no d--mned response to the price signal whatsoever. Not coal consumers, and not coal producers. Producers have barely cut production regardless of the un-profitable coal price. They continue to invest heavily on capital spending to maintain production level, despite of the fact that they need to preserve their cash and can not afford the capital spending to expand production.
JRCC and PCX went bankrupt. In a normal world, when you go bankrupt you go out of business and shut the shop down. Some how they merely changed share holders and get another batch of bank loans and continue produce happily at a heavy loss. I see no production cut from these two bankrupt coal company.
So I am at loss. If three years low coal price is not strong signal enough to tell the coal producers you've got to cut production. If even bankruptcy cannot force producer to cut production. Then what market force can eventually force they to cut back and return the market to normal? Some thing has got to give but I do not know what it is. The way it goes, if coal price drops to zero, they will still manage to produce the same amount of coal, and put free coal on the roadside to beg people to take them. But they will not cut production.
The bottom line is had producers cut production aggressively three years ago, things have been taken care of and we would see a normal market today, with normal coal stock price. But as bad as it is now, going to below $1 stock price, they still do not cut!