SOMERSET, PENNSYLVANIA—“Coal mining is about to get a lot more fun.”
That’s the word from George Dethlefsen, the CEO of Corsa Coal.
I introduced you to George in yesterday’s Daily. His company invited me to the grand opening of its Acosta mine.
Somerset is the last stop on my Rust Belt Tour. Regular readers know I’ve been traveling all over the region to see what’s going on in the economy.
The mainstream media says times are tough here. But that’s not what our boots-on-the-ground research is telling us.
In Pennsylvania coal country, they’re excited about the future… And that’s mainly thanks to President Trump’s plan to reduce regulations on the coal mining industry.
Deregulation should boost the industry… And we could see coal miners rise 300% from today if they return to pre-regulation highs.
If you’re interested in getting in on this bedrock U.S. industry, there are a couple of things you need to know first…
Coal Mining 101
One of the most misunderstood aspects of coal mining is that all coal is the same. That couldn’t be further from the truth.
When talking coal, you need to make the distinction between thermal coal and metallurgical coal.
Thermal coal is what most people are familiar with. Power plants use it to make electricity. It’s the “dirty burning” coal environmentalists are trying to rid the world of.
Metallurgical coal (also called “met” coal) is used in the steelmaking process. Met coal is sold to companies that produce coke—a modified version of coal. Steelmakers use coke because it generates intense heat that can melt metals.
The process to mine these two coals is essentially the same.
However, George told me, “Met coal is less environmentally challenging to mine… And we can usually sell it for two to three times the price of thermal coal.”
Today, thermal coal sells for $85 per ton. Met coal sells for $246 per ton.
That’s good news for met coal miners because demand is increasing…
Supply-Demand Ratio Favors Coal
Demand for met coal is up. At the same time, the supply of met coal is decreasing.
If Trump’s infrastructure plan moves forward, the United States will need a lot more steel—and therefore a lot more met coal.
“Right now, steel production is up 5%. That’s huge,” George said. “Usually, steel production goes up with global GDP… which hasn’t been higher than 2% lately.”
And supply is slowing…
Most coal companies don’t mine met coal. George said, “The U.S. will produce about 700 million tons of coal this year. But 90% of that is thermal coal.”
Meanwhile, China is cutting back on the amount of met coal it produces.
China is the world’s largest miner of met coal. When prices got too low, the country cut back production by 10%.
As you can see in the chart below, rising demand and decreasing supply are sending met coal prices higher.
Met coal miners are the best way to play the resurging coal industry. But any individual miner is a risky play. So if you want to speculate in this market, don’t bet the house.
We haven’t found the company we like best yet, but we’re looking to add a coal company or two to the “America First” portfolio.
Meanwhile, if you want a safer way to play the resurgence in coal, consider the VanEck Vectors Coal Mining ETF (KOL). In this fund, you’ll own multiple coal companies and can ride the wave higher.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
Biotech stocks are exploding higher…
I told you in the March 31 Daily that biotechs were cheap… And they were ready to rocket higher because Trumpcare failed to pass in Congress.
At the time, the iShares Nasdaq Biotechnology Index Fund (IBB) was at $290 per share. At market close yesterday, it was at $316… up 9% in a little under three months.
We might see prices rise even more… When a stock breaks out to new highs, it often goes higher.
In Wednesday’s Daily, I wrote that too many regulations were stifling business in Buffalo, New York (“This Is the Biggest Threat to U.S. Industry”). Our readers weighed in…
From Bret R.: You ask how regulations and taxes have affected things. I live in northern New Jersey, outside of New York City. As a business owner in the health care field, I can say firsthand that the government regulating health care is a huge mistake.
When I first started, everything was more affordable and there was much more value received per dollar spent. Now, I have a business with close to 25 full- and part-time employees, and I am barely scraping by.
The Rust Belt isn’t the only place hurt by regulations. However, the liberal-minded around here haven’t learned yet that more government isn’t the answer. Great job. Keep it up!
From Curtis P.: The article you wrote about Buffalo’s troubles is very accurate. I am a resident in the southeastern part of New York (Dutchess County) and know that a lot of what was mentioned is going on here.
Erna W.: In my state, I must have workers’ comp before I can get a motor carrier permit. I own a new company in the towing business, and I couldn’t afford any other workers’ comp insurance except a state fund… and the state is charging me close to $90,000 per year for that insurance. So it is killing my startup business.
From Jim H.: California passes laws with good intentions but bad consequences. One example is a law that requires background checks for buying bullets. This is backdoor to forced gun registration; who will buy bullets without a gun?
This will cause people to buy large quantities during a purchase or go out of state to buy ammunition, where you can buy large magazines—which are illegal in California. It will create more harm than good. Stay tuned!
From Michael S.: I lived in Illinois until I retired last fall and had to move to survive financially. I had planned to retire where I was living in central Illinois. I built my dream home for $150,000—all paid for but with my modest retirement and Social Security. But I could not budget $4,000 per year in property taxes. My wife and I moved to Florida. Property taxes on approximately the same value home is $650 per year.
From Keith M.: Read with interest your comments on Fort Erie, Canada, and Buffalo. Cannot agree with your comments on Fort Erie, though. In general, Ontario is a socialist hellhole, overtaxed and overregulated by the corrupt liberal Marxists in office.
I drive around Fort Erie and I see a pathetic, underdeveloped community. There are factories belching smoke? Where? We originally considered buying there as dual citizens when we moved to Canada from Tennessee. There is nothing there compared to virtually any American town of similar size. Your comments on Buffalo ring true, but not communist Ontario… Jobs are fleeing.
Nick’s Reply: Thanks for the letter, Keith.
I talked to former New York gubernatorial candidate Carl Paladino (the owner of Ellicott Development and my guide during the trip to Buffalo) about this same subject.
Carl told me that he’s heard it’s easier to do business in Fort Erie than Buffalo. He’s talked to several Canadian investors interested in Buffalo because of its cheap real estate. But after learning about the regulatory landscape in New York, they all went back to Canada to set up shop.
He also told me this: “Nick, go to Niagara Falls. When you get there, look across the falls and then turn around. What you see will surprise you.”
I took him up on the challenge. Here’s what I saw…
The picture on the left is the Canadian side of the border. There are buildings and hotels where people can see Niagara Falls from their rooms.
The picture on the right is the U.S. side of the border. The only thing along the falls is a park and a restaurant. A mile or so from the park is a new high-rise casino… but that’s the only thing the U.S. side has going for it.
I’m not saying one side is better than the other. My wife liked the U.S. side better—she said it was more natural.
But what side do you think has a better economy? Without a doubt, the Canadian side.