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The Hidden Opportunity in Asian Coal

If there was ever a contrarian play, it’s the coal sector today.

Major coal producers like Peabody Energy (NYSE-BTU) are trading below the levels they saw during the height of the 2008 financial crisis (see chart below).

So what could be scaring investors more than the end of the financial world? Why are they dumping coal miners at such an unprecedented rate?

Bad politicking. A combination of a perceived “war on coal” from the Obama White House with a sudden edict from China that the world’s largest consuming nation may restrict its imports of lower-quality coal.

Throw those whammies together with bad markets for miners in general and you have a formula for multi-year lows in producing stocks.

The generally negative atmosphere around coal has bred a set of knock-on concerns. Analysts have trotted out supply expansions in Indonesia and Australia as a threat to prices. Others point to “faltering” Asian demand as a weight ahead on the market.

But a look at the numbers (the recent numbers, not the dated 2011 figures used by many brokerages) shows a much more interesting picture. Growing demand from some unexpected places, and supply that might not be keeping pace as much as some believe.

What’s more, the supposed China coal ban now looks like it will be scrapped before it ever sees the light.

All of which makes coal markets look much more positive. Especially the Asian coal markets—the…




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