Have Nat Gas & Coal Stocks Hit Bottom?

Video information

Source: CNBC
Added: 06-19-2012
Tags: coal

to. welcome to the uppernet.verizon. giving up gains afteryesterday's dramatic spike. commodity as you're aware down17% so far this year. have we seen a bottom? michael harris, director of trading at campbell & company with us to break down the technicals. good morning, what's the view. thank you very much for having me. i think if you look at the one-year chart, we're still in a down trend. our models have been followingthat. medium to long-term still in place. yesterday's pop dramatic, 14%, one of the biggest moves in the last two years.shorter term models reacted, gone and established a longposition. overall firm wise, although we're not as short as a fewmonths ago, we're still holding onto the short position. it is a major move. what would have to break to convince you the trend changed. if you look at the charts, 255 is certainly a cruciallevel, right around where the long-term one-year down trend iscoming in. we've flirted with that level today, a high of the session. you really have to look at where we close today. if we close north of 255 going up to 260, more systematic players like campbell will be covering short position. that may start a new trend to the upside. b.k., are you a buyer? i am a buyer of natural gas, especially after a 15% increase. it's barely even down today. i would have thought it would be down 5% today.my question for you, sir, on a systematic basis, if you knoweverybody else is going to have to start covering shorts, do youguys ever get in front of that tidal wave coming? no, 100% quantitative, we're always going to let our models make that decision for us. from a macrostandpoint, one thing to focus in is demand for utilities. ia estimated up over 20%. that was the real shock yesterday. switching from coal over to gas is a little more pronounced than people thought. that's one of the reasons we didn't see supply numbers we were looking for.have to look at data, next week ia data to confirm changingdemands on supply and demand side. michael right now as you're looking at natural gas itself, boone on earlier talkingabout next year at this time over $3. do you agree with that position? from a modeling perspective, still on a one-year down trend. i think my view might change in the next few days if wets to crucial levels. overall downward trend, natural gas. the real question is a lot of traders got washed out. as they look to establish new position will they decide to take a punt on the long side or get back in, now 14% higher. michael, where are we on oil now? oil wise, we're firmly in a downward trend. the market is off almost 25% since the highs up at 110.55. that's been a great trebd over the last few months, riding it to the downside. as you've already highlighted on the program i can't point to oil fund men's to watch. you've got to watch greekelections sunday night, risk on risk off on the asian open basedon the results of those elections and that's going to drag outwith it. thank you very much. michael harris joining us fromcampbell. john and jerry, where are you? given the success of the shale projects, simon, increased liquids and nat gas. that's what's weighing on this more than anything else, now that the aubrey mcclendon situation may be straightened out, one of those big precious through chesapeake hammering it down. i think that hammering continues, perhaps not as hard because of like i say increased production out of there. is your brother right? john and i tend to agree with each other, we look a lot alike. as far as energy play when lou at the last week and a half in our world, options world, we have seen nothing but peopleattacking to the upside in names like energy earlier in the week.90, not a bad return. bp, oih, across the board. ne. s v we had that sector as our hottest. the last couple of weeks optionsplaying upside. go to the other side of that trade. coal stocks have taken a beating at the hands of the rock bottom natural gas prices. peabody and alpha natural resources are down, as you're probably aware, double digits for the year. have these stocks found a bottom. ranked number one for the sector by the financial times poll, what's the view, what's the trade? what we've got this year is a technical term in the coal industry, what we call too much coal. i think if you've got it -- can you break that down for viewers? well, right now, at the utilities today sitting on $205 million. typically if they are targeting 50 days of inventory, that's only about 120 million tons. that means for the next yearworking down of excess inventories. i think that's going to comereally at the expense of the firms in coal at the high end of the cost curve. today there's about 1100 active coal mines. the top 10% of coal mines in size produce 78% of the coal. so what we would suggest is for investors is that it's still time to be reasonably cautious. if there's value, it's in firms large scale lowe cost mines. those are the ones making money in the downturn. focus on peabody energy in the west and firms still making money in the downturn. yesterday tudor came out witha risk reward on call names. they through in anr, you shared cnx was your favorite pick i would get. as far as risk reward, how come walter doesn't pop up there, wlt? walter is a firm reallypurely in a different market, export metallurgical market. coal is natural gas demand, a casualty of five years, seven years of weak power demand. walter is in a separate boat. so it's going to be very driven by issues like chinese steel production, australian -- you're still confirmed with nat coal prices haven't bottomed at this point. visibility on nat coal it's not as good as we can say in the domestic thermal markets, pricing below for three quarters now. b.k. hey, you talked about utilities having big inventory. from your perspective, do you have an idea whether utilities bought this call? what i'm getting at, are theylosing money burning this coal they bought at higher prices?well, i guess i'd say as far as the utilities go, they went into 2012 with a pretty full book of business. so sure they bought coal athigher prices than what we see in the spot markets today. that's going to always be the case. as far as losing money, theutilities are different regulatory regions in different states. for the most part we wouldn't say they are losing money by burning coal at these levels. what we would be concerned about from coal supplier, as some of these higher priced coal prices roll off at the end of 2012, if you're operating a higher priced coal mine and repricing the market in 2013, you might not be able to cover cash cost. what we think will happen on the supply side is going to be more coal mines coming down. 1% on coalproduction. before we let you go, if cnx is your top pick, buy, what's the upside on that? i think you could see -- if we were to see some recovery, if boone is right $3 plus natural gas prices in a year and if we were to see an ongoing attrition of the high cost coal mines, we're expecting something in the upper 40s for c inform x in a 12-month timetable. paul, thank you for joiningus. joining us from stifel nicolaus. from baltimore. thank you very much. let's trade it. b.k. i have no desire to be in coal stocks at all. plenty of other places out there. maybe a long-term play people going to continue to burn coal, i guess so.there's plenty of other opportunities that are moving and have growth. you have no desire to be in a gym either but we didn't hold that against you. that's just not right. john, where are you on these coal stocks? well, as i said with my outlook being that the shale plays will continue to outperform as far as delivery ofboth liquids and nat gas, that's going to put pressure on thecoal plays that are the steam coal. as far as metallurgy, on anykind of a flush we might get here. i think we'll we've seen flush in walter, john, but you can use the options better than you ever could before. premiums are extreme. i've been rolling every month for the last over a year now and taking off $2 and $3 every month or so, simon. to that point, yes those coals have been beaten up. if you're using options properly you can make money. let's look at zimmer holdings which appears to be jumping. john, i'd appreciate your comment, zimmer making now substantial gains. what are your thoughts. i guess according to our friends, biomet owned by blackstone put out earnings during the day -- guys, i have to break in.

Other videos