Great investment opportunities require two things.
Firstly, great fundamentals. And secondly, a perception that is significantly disconnected from the rosy reality.
The coal market today shows both of these factors--with a considerable gap in between. General sentiment towards thermal coal producers today is awful. There's a sense that the global electrical sector has moved on from coal. Causing a fall in demand, while at the same time output surges from major producers like Indonesia and Australia.
And yet good news just keeps coming up when it comes to the fundamentals for the thermal coal sector.
We saw another such point this week from the Japanese Federation of Electric Power Companies.
The industry group announced that thermal coal consumption by Japan's power sector hit a record in October. Jumping 25.8% from October 2012, up to 4.78 million tonnes on the month.
The move represents a decided switch to coal for the Japanese power sector. An industry that is trying to reduce use of expensive crude and fuel oil. With consumption of those fuels in October falling 16.3% year-on-year.
Growing Japanese coal demand is an unexpected boost for the market. China and India have been seen as the main drivers for import growth recently, with Japanese demand thought of as significant but relatively level.
Add Japan's burgeoning coal demand to Indian imports that are set to jump 50% this year, and the picture for thermal coal starts to look much different from prevailing opinion.
Especially in light of recent mine closures and project suspensions in producing nations like Australia.
When good news keeps piling up while investors insist on being bearish, it usually means good things ahead for a sector. Coal today is one of the best fits we've seen in a long while, on both of these counts.
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Here's to keeping your eyes open,
Dave Forest
