This Could Break The Coal Story Wide Open

There's a quote from Napoleon that's always stuck with me. About the nature of things coming and going:

"I feel myself driven towards an end that I do not know. As soon as I shall have reached it, as soon as I shall become unnecessary, an atom will suffice to shatter me. Till then, not all the forces of mankind can do anything against me."

Sometimes I feel like resource trends are similar. There is a period when a trend is in motion--and nothing can be done to stop it. Then gradually it begins to weaken. Until it reaches a point where even a tiny event can break it apart, sending things in a new direction.

I believe we're at that point in the coal market.

The trend has been decidedly down for coal prices and stocks the last few years. With any bullish sentiment being crushed by fears of oversupply, and a wave of negative public sentiment around the sector.

But the bull case for coal has been growing and growing. You've heard me talk about it--rising demand in India, falling export supply in most of the major producing nations.

None of this has had much effect in terms of pricing or stock valuations. Yet.

But I believe news this week may be the "atom" that shatters the down-trend. With reports suggesting that major coal producer Indonesia is on a full-out campaign against illegal exports.

The Indonesian government noted that it is changing the paperwork required by miners exporting coal. Mining companies wishing to send supplies abroad will now have to show documentation that they are in good standing with the government--having paid all royalties, and complied with environmental and other permitting.

This could be a major problem for some miners. Estimates from the government are that up to 50 million tonnes of coal may be produced illegally in the country.

Such production will now be barred from export. Potentially reducing supply out of Indonesia even further, following announced cuts in production targets last week.

This is a market on edge, and it won't take much to flip it into a fever pitch. This week's export rules could be the thing.

Here's to the times a-changing,

By Dave Forest