Friedman Billings notes the coal sector remains a very investable space, but the pending power and current met coal demand declines present real volatility in the near term. Based on their supply surplus, they estimate that the coal producers have pulled off about 30% of the domestic steam and probably less than 25% of the global met necessary to balance the market in 2009. They believe more is coming and will be aided by natural barriers such as permitting and geology. They note if the Russia Ukraine dispute becomes more permanent, the natural gas shortfall could manifest into as much as 6 MTs per month in extra demand. However, other energy sources, such as LNG and coal from other exporting countries like Colombia and South Africa, could be used collectively to fill the gap. As such, they would not expect a material increase in U.S. export due to this dispute, especially if it ends quickly. They head into quarterly earning season cautious as always but this time with the unusual met contracts not being honored. On a positive note, falling energy prices should boost domestic GDP 3% by our very rough calculations.
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