The World's Most Uniquely-Positioned Coal Play

Things are starting to get interesting in the global coal market.

The key word being "starting".

The strategy unveiled by South Africa's power authority Eskom may be a game changer. In that it could divert a significant amount of supply from the export market into the domestic power space.

Now, to be sure, the worldwide thermal coal market is in the doldrums. And it's unlikely that even a significant shift in South Africa is going to be the silver bullet to get prices moving higher again.

At least not everywhere.

But the thing is, when it comes to coal, there are markets within markets. And one of the biggest of these "micro-sectors" is India.

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Indian consumers have been desperate to secure supply the last few years. And in this part of the world, they don't have as many options as some other coal buyers.

India is largely too distant to receive coal from a swing exporter like America. And even when it comes to a go-to supplier like Australia, the shipping distances involved can be enough to discourage local buyers.

So India only has a few options when it comes to imported coal. Indonesia has been the main supplier. And nearby South Africa has largely filled any gaps.

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But that could change if South African policies result in a reduction of exports. And if India's supplier-to-the-west goes, what options are left to plug the void?

At the moment, it's difficult to see any answers. Former coal exporters like Vietnam and Thailand are largely flipping to being net importers. And even India's main supplier, Indonesia, is starting to finally see a slowdown in production as a result of low prices and rising domestic taxes on miners.

Given all of this, there is one play that's starting to look interesting: Kenya.

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Last week, the Kenyan government announced that it will offer up 31 new coal blocks for bids -- in order to kick-start the country's mining industry for this commodity. This follows on development that's been taking place on a number of initial blocks, from groups like China's Fenxi Mining.

These projects are at an early stage to be sure. And there isn't yet any commercial coal production in Kenya -- let alone exports.

But for foresighted investors, the unique dynamics setting up around the Indian Ocean coal market make this a spot worth watching. Especially if China takes a lead position in securing supply from this prime-positioned nation.

Such an event could trigger Indian miners and coal users to scramble for projects in one of the few places that still offers near-at-hand supply. After all, India has made a number of attempts to develop coal supplies out of Kenya's fellow East African nation, Mozambique -- most of which have been thwarted by lack of infrastructure in that country.

Kenya is even closer to India when it comes to shipping coal. It's early days, but if the industry takes off after the government's recent and aggressive push, this will be a place that India's coal industry will be watching.

Here's to the rise of the East,

Dave Forest

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