Canadian Recession Imminent As Manufacturing Sales Plunge

No matter how it is spun, Canada is edging close to a recession, as the latest manufacturing numbers from Statistics Canada confirm.

Sales in the latest quarter plummeted 2.1 percent to $49.8 billion during April, resulting in overall manufacturing sales down 7.3 percent from the same period in 2014.

Inventories also were up 80 basis points, reaching a record $72.3 billion. The Bank of Canada has suggested that a weaker Canadian dollar and lower operational costs in the oil and gas industry would drive the manufacturing base of Canada back up. I believe that's only wishful thinking.

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Coal Firms Alliance (AHGP) (ARLP) (WLB) (CLD) Trade Mixed

Coal companies have been performing somewhat volatile of late, depending on specific results for each company, even though the overall sector has been doing well. Firms like Alliance Resource Partners, (NASDAQ:ARLP), Westmoreland Coal Company (AMEX:WLB), Alliance Holdings GP (NASDAQ:AHGP) and Cloud Peak Energy Inc. (NYSE:CLD) closed mixed on Thursday, as the market looks for short-term direction.

Like any sector, coal companies, even within the high-demand industry, still won't be carried solely by the robust market demand.

Even so, approximately 40 percent of global electricity production comes from coal, and that could rise in the years ahead, as coal consumption is expected to increase at a rate of 2.5 percent annually over the next 20 years, according to Research and Markets.

It could even be more than that, as evidenced by the 5 percent increase in 2010, said the EIA. It adds that 2011 coal consumption should remain about level, and in 2012 should grow by between 2 to 3 percent.

JPMorgan (NYSE:JPM) also recently said coal prices are up over the last year, but are still below the highs attained befort he financial crisis in the latter part of 2008, suggesting room to move higher, although the health of the global economy will play a role there.

Coal is still the major fuel for electricity production. Global coal consumption, approximately 6.7 billion tons in 2006, is set to reach close 10 billion tons in 2011.

China produces about 70 percent of its electricity from coal and demand there continues to grow. Demand for coal to fuel power plants will climb to 1.4 billion tons by 2015, according to China Huaneng Group Corp.’s Chief Economist Wu Dawei.

So when you hear the next report attempt to downplay the role of coal, don't believe it. It's as needed and in demand as ever, and similar to the oil peak predictions, is pretty much a joke, as coal has been attempted to be painted in the same way, not taking into account the huge amounts of coal being discovered in China, and other places, and extraction methods that have been improved.

Many coal companies will shine, but they still need to be judged by their individual merits and not expect the ongoing coal demand imply all of them will be winners pulled up by the broader sector.

Cloud Peak Energy closed Thursday at $20.64, falling $0.45, or 2.13 percent. Alliance Resource Partners closed at $49.61, dropping $0.57, or 1.14 percent. Westmoreland Coal Company ended the day at $15.75, gaining $0.23, or 1.48 percent. Alliance Holdings GP closed at $49.61, down $0.57, or 1.14 percent.

Rio (RIO) Says Iron Ore, Coal Production Down in 1Q

Not unexpectedly, Rio Tinto (NYSE:RIO) announced coal and iron ore production in the first quarter fell as a result of the heavy rains which hampered mining in Australia. Also affected was uranium output.

Production of iron ore fell from 50.1 million tons the prior quarter to 41.9 million metric tons. Hard coking-coal production dropped to 1.6 million tons, a 29 percent decline.

Full year earnings for Rio and major competitor BHP Billiton (NYSE:BHP) are expected to come under some pressure from the slowdown.

Evens so, Rio estimates it'll produce about 191 million tons of iron ore in 2011, up from the 184 million tons produced in 2010.

Paul Galloway, a Sanford C. Bernstein Ltd. analyst, wrote today in a note to clients, “Given this relatively robust full year production guidance, we view the substantial miss in iron ore production as a largely one-off occurrence and would expect to see improvement in the short-term. The overall impact on full-year 2011 earnings estimates in the market may be smaller than might initially be expected.”

Chief Executive Officer Tom Albanese said concerning production, “Our Australian coal, iron ore, uranium and alumina operations were affected by the extreme weather in the first quarter. Most are recovering and are benefiting from continued strong prices.”

Rio was trading in New York at $71.22, falling $0.91, or 1.26 percent, as of 2:15 PM EDT.

BHP (BHP) Spending $9.5 Billion to Expand Iron Ore, Coal Operations

BHP (NYSE:BHP) announced it is going to spend about $9.5 billion to expand Australian iron ore and coal mining operations. BHP has said they have plans in place to spend about $80 billion over the next five years to expand the company.

With commodity prices having soared for years, BHP is looking to grow by organic means rather than through acquisitions, as the valuations of quality companies have skyrocketed and cost in many cases are prohibitive.

The company has also failed at three major takeover tries, and it appears countries are also protecting their raw materials as well, as in the case of Potash Corp. (NYSE:POT) in Canada.

The leading global miner said it would invest $6.6 billion in a total investment of $7.4 billion to continue production growth in the company's western Australian iron ore operations.

Investment will include the development of the Jimblebar mine, rail links and additional berths and ship loaders at its Port Hedland site.

BHP said it had also approved three key metallurgical coal projects at its Bowen Basin site in Queensland.

BHP will put in $2.5 billion of the total $5 billion investment, which will see the new Daunia mine developed, its Broadmeadow mine's life extended by 21 years and the stage three expansion of its Hay Point coal terminal.

In a third statement, the company added it had approved a $400 million investment to expand Hunter Valley Energy Coal in New South Wales with the goal of increasing production.

BHP Billiton closed Friday at $90.07, falling $0.59, or 0.65 percent.

Shares of Patriot Coal (PCX), (ANR) (EEE) Jump on Japan Demand

Evergreen Energy (NYSE:EEE), Alpha Natural Resources (NYSE:ANR) and Patriot Coal (NYSE:PCX) joined other coal companies in a rising share price, as expected coal demand in Japan will soar in order to replace the loss of electricity generated from the nuclear reactors.

Other energy sectors such as wind and solar have been pushed up, but that's unsustainable, as there's nothing in that segment of the market that can help Japan in any way.

Another major product expected to rise in demand in Japan is liquefied natural gas, in which Japan is the largest importer in the world at this time.

For now there will be rolling blackouts until power is sufficiently restored in the country.

Patriot Coal closed Thursday at $23.63, gaining $0.31, or 1.33 percent. Alpha Natural Resources ended the trading day at $55.02, up $2.10, or 3.97 percent. Evergreen Energy closed at $2.93, rising $0.14, or 5.21 percent.

Shares of Arch Coal (ACI), (YZC), (BTU), (MEE) Rise on Expected Japan Demand

With few exceptions coal companies have been soaring on expectations Japan will need an huge supply of coal to replace the loss of nuclear energy. Companies like Arch Coal (NYSE:ACI), Yanzhou Coal mining Co. (NYSE:YZC), Peabody Energy Corporation (NYSE:BTU), and Massey Energy (NYSE:MEE) have been soaring in share price on the expected boost in demand, confirming the vital importance of coal as a major source in generating electricity.

Energy sectors like solar and wind power were also up, but that is more a irrational reaction and irrelevant, as there is nothing there that could aid Japan in the short or long term.

Liquefied natural gas is another demand expected to surge in Japan, as Japan is the largest importer of that in the world.

Arch Coal, Inc. closed Thursday at $35.09, gaining $.94, or 2.75 percent. Yanzhou coal mining Co. closed at $31.96, gaining $1.00, or 3.23 percent. Peabody Energy Corporation closed at $70.12, up $2.45, or 3.62 percent. Massey Energy ended the session at $63.15, up $2.32, or 3.81 percent.

Peabody (BTU) Lands Another Indonesian Coal Sourcing Deal

Peabody Energy Corp. (NYSE:BT& announced Friday that it has a deal with Indonesia's PT Cahaya Energi Mandiri (CEM) to source 2 million tons of coal for Asian export.

The coal from PT CEM will come over a period two years from a mine in East Kalimantan.

Export will be through Peabody COALTRADE's international trading hub in Singapore.

Peabody said the relationship with PT CEM could be expanded over time.

Peabody said this is the third agreement it reached recently to source Indonesian coal, including a deal inked in December with PT Supra Bara Energi in Indonesia, and together the deals total 5.5 million tons.





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Rio Tinto (RIO) Removes Force Majeure on Australian Coal Mines

Global miner Rio Tinto (NYSE:RIO) has lifted force majeure on its Blair Athol and Kestrel coal mines in Australia's northeast Queensland state but kept it in place for two other mines, Rio said on Thursday.

The mines had been under force majeure since late December due severe flooding in Queensland state that brought much of the state's coal mining industry to a halt.

Rio lifted its force majeure from Blair Athol on Friday and from Kestrel on Monday, a spokesman for Rio Tinto Coal Australia said.

"Force majeure remains in effect at Rio Tinto Coal Australia's other two mines in central Queensland: Clermont and Hail Creek," the spokesman said.





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Arch Coal (NYSE:ACI) Elects Former Wyoming Governor to Board

Former Wyoming Governor David Freudenthal has been named to the board of Arch Coal (NYSE:ACI), and will serve on the board's audit and energy and environmental policy committees.

The company said Wednesday that Freudenthal will be joining the board effective immediately.

Freudenthal holds a law degree from the University of Wyoming, where at this time he’s a guest lecturer. He also has worked as an economist, in private legal practice, and was an U.S. attorney for Wyoming for over six years.

In 2009, Arch Coal acquired Rio Tinto’s (NYSE:RIO) Jacobs Ranch mine in Wyoming, making the the second-largest producer of coal in America.

The company close to 161 million tons of coal in 2010.

Arch Coal closed Wednesday at $32.73, gaining $0.53, or 1.65 percent.

Chevron (NYSE:CVX) Selling Coal Assets, Too Long Term for Them

Chevron Corp. (NYSE:CVX) announced they're going to sell their coal assets, with the goal of divesting of them by the end of 2011. They cited the approximate 10-year to 15-year period for new coal technologies to come online as the reasoning behind their decision.

Chevron Mining Inc. spokeswoman Margaret Lejuste said, "Those technologies are so far into the future, 10 to 15 years in the future, they made the strategic decision to focus on other operations other than mining."

Included in the coal assets sale will be mines in Wyoming, New Mexico and Alabama.

Together the mines in these states produced almost 10 million tons of coal in 2009.

Chevron closed Friday at $93.37, dropping $1.38, or 1.46 percent.