There are exactly two ways to succeed in investing.
First, be a visionary. Look at the data everyone else is puzzling over and see something they don't. Then translate this into profitable trades ahead of the masses.
Or, be an explorer. Seek out far-afield information beyond the eyes of most casual observers. You then don't need any special insight to beat the herd--when you know something no one else does, even the simplest findings become unique insight.
You just have to know where to look.
That strategy is going to pay off handsomely for the few investors who've lately been following one of the most high-potential energy opportunities on the planet. Thermal coal.
Now, information on the coal sector is easy to find. In some places. Data abound on production and pricing from important players in this space like Australia and America.
But some numbers are much harder to find. Which is what makes this opportunity so high-powered.
The key data points in this case come not from usual-suspect places on the planet. But from a part of the world where information is much harder to come by.
Reliable data on the Indian coal sector isn't the kind of thing you just pull off Wikipedia. In fact, even the country's government and private sector pros often don't agree on the numbers--publishing wildly different figures on coal demand and import volumes.
But to anyone digging into these obscure figures, one message is clear from both sides: India's coal demand is exploding.
India's Coal Minister admits it. This week in questioning he reported that Indian imports of thermal coal jumped 42% during the year ended March 31, 2013.
So far during the current year—he said—it appears the import numbers are headed even higher.
Those figures imply that India's coal consumers are growing their shipments of foreign coal rapidly. To the tune of tens of millions of tonnes of new import demand yearly.
Numbers from private shipping firms--the people who are actually moving the coal into the country--suggest that growth may be even greater. With shipping reports pointing to a rise in imports on the order of 50 million tonnes during the current fiscal year.
That's a big jump. Reminiscent of 2009 when China suddenly and unexpectedly ramped up its coal import demand. An event that swung the balance of global coal markets, causing a run in coal prices, and triple-digit gains for coal stocks.
In other words, these are the kind of structural market changes investors should be paying attention to.
So why hasn’t the wider investment community been jumping on the big changes suggested by growing imports into India?
Because they’re not looking in the right places.
Few investors monitor the raw numbers coming out of India. Instead, most simply look to global coal prices as a proxy for what’s going on in the market.
And those prices have been uninspiring of late. Australia’s Newcastle coal marker, for example, has fallen 10% since the beginning of 2014. The chart below certainly wouldn’t get any readers fired up.
But in the case of the India opportunity, prices are a poor shorthand for understanding the market. Because of what’s been happening with supply.
Specifically, from Indonesia. Coal production and exports out of Indonesia have been rising dramatically—with this country single-handedly meeting most of India’s increased import demand. According to government stats, India’s imports of Indonesian coal grew by 27 million tonnes last fiscal year. Following on a 19 million tonnes increase the year before.
Indonesian producers have thus quietly kept a lid on prices—despite India’s surge in demand.
But here’s where it pays to be watching the action behind the scenes. Because it looks like the Indonesia story is about to change.
The government announced a policy shift last week where it will move to limit production of coal in the country. In fact, legislators are targeting 2014 coal production at nearly the same levels as 2013. Meaning there will be little growth in output to service the import demand from India—which the numbers suggest is continuing to rise, unabated.
As this situation plays out, it’s going to take a lot of investors by surprise. Supply and demand will tighten—which could lead to an upward surge in prices, quickly.
Only then will most observers catch on to the story. Scrambling to buy stocks of coal producers in the Asia-Pacific sphere.
But by knowing where to look, we can see it coming—and position ahead of this stampede of buying. That’s how the big money is made. Keep an eye on this space.
We’ll be looking at which specific companies we see benefiting from this trend in next week’s edition.