Coal: US, China take different position on coal, Israeli technology making waves in China

Thanks to increasingly hostile coal related US environmental regulation and an oversupply of coal in Asia as well as low natural gas prices, coal prices are near rock bottom. These factors have worked together to not only affect the price of coal but also demand from one of its main customers, utility plants; Traditionally over 45%, coal's share of power generation was at 39% in November 2011, the lowest level since March 1978. What's worrisome about that drop is this, the other main sources of popwer generation were all up (natural gas 22%-->26%, nuclear 20%-->22%, hydro 6%-->7%). What this also suggests is that the growth in renewables ARE NOT making any meaningful contribution to overall production (unsurprising given that their associated total costs of production exceed 20c per kWh, that compares to under 4c/kWh for coal) - not much incentive to shift over if you ask me.

Some are suggesting that it's the low price of natural gas that's causing companies to abandon coal but I say not so fast ! Even with the 49% drop in price (gas) between January and April 2012, per kWh gas there's still not much difference in cost when choosing it over coal. In Canada analysts expect natural gas prices to more than double over the next 1-2 years which would certainly take away any price incentive fueling the shift from coal to gas. (from $2.1/mmBTU April 22 --> $4.5 by 2014); Also keep in mind that while analysts almost unanimously agree that the price of natural gas will rise, the same can't be said of coal.
Natural gas averaged $4.00/mmBTU in 2011 but ended the year at only $2.75, it then fell further down to $1.40/mmBTU by April 19, 2012. Also to consider: The outlook for coal prices is not as good as it is for natural gas.

Greater access to cheap energy is something the United States should be striving for. Cheap energy has become the cornerstone to China's growth model. China's long term demand for coal is growing at around 5-8%/yr meaning that demand from that country will double within a decade (in 2010 China accounted for 48% of global thermal/metallurgical coal demand). Non-OECD Asian countries will account for 95% of the 55% global rise in coal demand by 2035. That trend is in stark contrast to the United States where demand for thermal coal is expected to drop by 5% to 884 million tons (lowest level in 17 years) and where 106 coal-fired plants have shut down in just the last two years directly translating into a 13% loss in terms of MW capacity). Thermal coal accounts for about 60% of US-China coal exports. The major drawback to China's reliance on cheap, nonrenwable energy sources? Well for starters, it is home to 16 of the world's 20 most polluted cities.
Though US coal exports were up +31.3% in 2011 to 107,258,561 tons total US coal production was up only +0.9% to 1,094,336,000 tons. Major contributors to that change were Latvia (142-->163 thousand tons), Japan (3164,098-->6911,539 tons) South Korea (5722,599-->10448,751 tons), India (2722,677-->4500,105 tons), Netherlands (7306,376-->10785,421 tons). Demand from Canada was down -40.0% to 6845,316 tons (in 2010 Canada lone demanded more than all of South America but because of changes in 2011, Brazil now demands about 1.8Mt more than Canada.

Israel and China

Although many renewable sources of energy require technology that's very expensive to build and with less desirable results, a new form of clean energy with relatively low operating costs (1c/kWh) is one that harnesses energy from naturally occurring sea waves. The production costs being only a quarter as much as it is for wind or solar, have attracted Chinese investors keen on bringing it to China. In 2010 the first of a number of Chinese sea wave plants was constructed in Guangzhou by Israeli company SDE. Though it has a capacity of only 1MW it ushers in the first of many such plants (Guangzhou alone will be home to 10000 MW capacity by the time the project is completed).

Facts

-Rock bottom shipping prices (freight) is making it easier for US coal producers to access Asian markets; In 2012 US coal exports to China are expected to double to 12M tonnes.
-Today, freight from the US Gulf of Mexico to China is around $50/tonnes, that compares to the bid price for coal of $102-104.

Gold Prices, Eurozone Bond Sales (commodities weaker on strong US dollar, market selloff but long term fundamentals remain strong, Italy bond rates double in just one month)

Interesting Fact: 12% of the world's gold is produced at mines dug by individuals without advanced digging equipment. A lot of those mines are in countries like Mali and Somalia.
So far in 2011 silver's popularity has gone up while gold's has decreased slightly, at least according to sales reports by the US Mint. Between January and end of November 2011 the US Mint sold 37,859,500 ounces of silver (up 15.11% from 32,890,500 oz in 2010) and 934,500 ounces of gold (down 19.5% from 1,160,500 oz in 2010). In fact on October 1st it was rumoured that upwards of 737 thousand of silver ounces were purchased from the US mint, a one day record. If true that would amount to 42% of all silver purchased during the month of December 2010 and 24% of the three million ounces sold in October. Since the US moved towards a weak dollar policy in 2002 silver has tacked on about 500% of its present value which is still about 20% under its 200 day average. 2012 update France's credit rating was lowered to AA from AAA by Standard and Poor's. That's a bad position for the country to be in considering it recorded zero gdp growth during the year and given previous statements by Sarkozy as recently as October when he said he would do everything he could to keep France from being downgraded.

Negative Forces affecting the metals
     Over the last little while, particularly the last two weeks gold, silver and other iso traded precious metals showed vulnerability even though their long term outlook remains strong. The weaker prices are due in part to a stronger US dollar (equity markets weak driven lower by the strong dollar which negatively affects foreign investment, EU sovereign debt uncertainty causes US dollar to gain). The ECB's reluctance to purchase the soveriegn debt of Italy and Spain has also been a negative factor (ECB has been under pressure from Germany to refrain from handing out blank cheques to debt laden countries citing the repercussions and how greater ECB exposure to Italy would mean more exposure for Germany, France has a different opinion and is lobbying the ECB for more support). France thinks that more ECB buying is the only way to encourage other investors to buy sovereign debt; On Friday, 10-year Italian bond yields surpassed 7% after the country's debt auctions that day showed lackluster results (Italy did sell €8B worth of 1/2 yr bonds (@ 6.5%) & another €2B in 2 year bonds (@7.8%) however the rates commanded by buyers nearly doubled from only a month ago (was 4.63% and 3.54% respectively). 7% yields in Italy puts it in the same class Greece, Ireland and Portugal were once in (though rates did get much higher for those countries before their financial collapse, the 7% rate was seen as a point of no return), this is extremely dangerous because Italy is home to the world's 3rd largest bond market after the USA and Japan (worldwide exposure to Itay is 3 times what it was to Greece) with Barclays calling Italy's situation "mathematically beyond the point of no return".
Even more disconcerting: Germany, considered the strongest of the EU economies (more manageable debt/high gdp growth) is having problems raising money in the bond market; On Wednesday Nov. 23rd Germany sold only 60% of the 10-year bonds made available. Update: With Italy's debt crisis worsening and the ECB not stepping up with more support, the IMF is reportedly preparing to loan the country $794 billion (€400-€500 billion) at an interest rate of between 4% and 5%. The loan would allow the country 1-1.5 years to reform its system and hopefully regain its solvency. It must be noted however that the IMF may be relying on a new credit facility worth just over €420 billion that was offered it in 2009 by 39 countries, to put together the money for Italy given that only two months ago the IMF only had less than €300 billion available to be loaned. (wsj:IMF Can't Rescue Europe Alone) The news pushed European Equities higher (main equities index up 3.75% on Monday). (news broke in Italy's La Stampa)

There's also bad news coming out of China - Many companies are laying off workers in the manufacturing sector and that's leading to strikes in cities like Dongguan and Shenzhen. Less import demand by Europe is causing a decline in export growth (down to 16% in October). Many of the plants use commodities like gold (1,000 people left their positions in protest recently at apple/ibm plants in Shenzhen) and silver (Foxconn makes electronic components, automotive plants - cars require catalytic converters which are the largest source of demand for platinum group metals).

Grmike's view The commodities market is entering a consolidation and deflationary period as a result of the current US debt ceiling being capped until 2013, US dollar rally, and gold and silver's post 2008 rally. The gold to silver ratio is getting very close to 60 which represents a doubling in eight months (33 in April 2011). Central banks continue not surprising since silver and gold remain fundamentally strong investments. View the lower prices as an opportunity to buy more. Poor debt sale showings in Italy, Germany and Spain mean debt may literally be insurmountable. The effect that will have on currencies will be disastrous and that will cause central banks to hoard even more gold and silver making the commodities invaluable.

What about emerging market debt? The debt crisis is making the buying of debt associated with developed nations increasingly unpopular particularly amongst international investors. So where are they going? Well, a viable alternative for the long term that's attracting interest are emerging market bonds that is, emerging market debt denominated in their local currency (debt sales in the developing world traditionally happen this way). Even a year ago when the debt crisis wasn't as widespread, US pension funds forecast their participation at over $100 billion before 2015. The only limiting factor is that in many countries including the big players China, Brazil and India the system is designed to limit foreign capital investment so not all foreign investment is allowed and when it is some countries like Brazil impose a special tax. Though still in its early stages, restrictions on them are gradually being removed and that's leading to more investment.

Last Monday's 2.5% dip in gold put the spot price below its $1,700/oz 100 day moving average, possibly an important breach considering that level had been supported for over a month (December futures contract on Comex down to $1,685.7/oz). In the week of Nov 21-26 gold fell 2.3% after falling 3.5% the prevous week. So far for November, silver declined in price by nearly 10% meaning that on the year silver hasn't gained anything. Out of all the metals with an iso trading code palladium lost the most on the week, dropping 5.9% to close at $572/oz.

Positive forces on the metals:
Gold ETF's continue hoarding, with the total weight of all gold held by ETF's recently reaching a new high of 69.978 million ounces led by the world's largest, SPDR Gold Trust.

Europe's Five Largest Utility Companies & Changes To Their Generation Capacity by fuel, Revenue, Profit (2009-2011) (EDF, EON, RWE, GDF Suez, Iberdrola), Profits Down Due to Low Electricity Prices

For the largest utility company in Europe (2nd largest in the world) (CNBC) Électricité de France (EDF), 55.5% of 2010 sales came from France compared to 57.7% the year before. EDF leads the electricity market in both France and the UK (33.2 million customers between them). Though large EDF's generating capacity relies more heavily on one fuel type (nuclear) than any of its competitors; It gets 75% of its generating capacity from nuclear energy (90% of its nuclear capacity is in France (France is the world's largest net exporter of electricity). Also of note, EDF is the world's leading operator of nuclear power and Europe's leading hydro electricity producer.

European utility stocks have been hammered lately, a direct result of earnings losses (hindering profits in Europe are low electricity prices which are expected to decrease even further in the near future (down to as low as €50 by 2015); Europe has contemplated electricity price fixing, in terms of industrial demand European countries already keep prices low so as to help their companies stay competitive, for households though it's a relatively new thing (Europe could be concerned that households can't afford further increases). Also affecting results: a warmer winter in France (GDF Suez said in its 2011 2Q report that the winter was 30.5% warmer than it was in 2010 and that was the main reason sales there dropped 8.5%/demand for gas 24% lower to 131 TWh, electricity 3% lower to 18.3 TWh). EON's stock fell 35% between January 1 and September 1, 2011 while the stock price of RWE AG (second largest German utility) fell 49%. However, revenue stream continues to be strong for most utilities but that's mostly because a number of them including GDF Suez (International Power) and Iberdrola (Elektro in Brazil (distributor) for $2.4 billion) have made significant acquisitions (also, a greater focus on renewables will benefit the companies in the long run as it makes them less dependent on natural gas imports while also removing them from carbon penalties). GDF Suez's organic ebitda growth in the first half of 2011 was -1.1% but new addition International Power was up 27% (business in America) and that boosted GDF's overall ebitda by over 8% (671m euro). According to broker data, in Germany baseload power for 2012 is at €58.95 ($84.16) per megawatt-hour. (RWE, EON May Be Long-Term Underperformers, Barclays Says)

EDF and GDF Suez also differ in terms of their international business. Most of EDF's generation capacity comes from domestic operations within France while GDF Suez receives less than 10% from France (the rest comes from places abroad like Africa/Asia and America (Canada is a significant source of wind power; about 182 MW worth in the first half of 2011). On August 9, 2011 it was announced that China Investment Corp paid €2.3 billion for a 30% interest in GDF Suez's exploration and production business. GDF Suez also produces oil, over 50M barrels in 2010. GDF Suez recently acquired 70% of International Power giving French companies a lot of control over power production in Great Britain (the other French company EDF has close to 8 million customers in the UK).

The 20 Largest Banks & Financial Institutions in the World (most globalized) as of September 1, 2011 (revenue, assets, profit, ranked last fiscal half)

TD Bank data is from the February to July 2011 period. % change in market value over the last year represents the change in stock, which isn't necessarily in dollars (for example ICBC stock fell 8% in Chinese currency, but the Chinese currency rose 6.3% in value over the period meaning that its USD market value only fell by a couple percentage points). When USA, NYSE, or ADR is shown it means the stock is already in USD. Just missed the list: Unicredito Italiano (Unicredit Group), Assicurazioni Generali (Generali Group), Royal Bank of Scotland, Royal Bank of Canada. Not included in the list is Japan's largest finance company Mitsubishi UFJ Financial Group because it's more of a holding company than a bank (otherwise it would've made it with $60B in market cap, $51B in annual revenue, -$1.7B profit in 1h11 (first loss in half since 2009) and $2.2T in assets).

Update:  On September 3, 2012 the data was updated for the 6 -months ending June / July 2012. Visit new article for more information.

                     The last year has been tough on banks, many suffered from losses in Greece (Societe Generale, for example reported 18% less profit in 2011 first half even though the 2010 period included €1.8 worth of risky assets from Greece alone and the bank was coming off a €7 billion fraud loss/euro was worth 5% less). But things are looking up, major European institutions like Intesa Sanpaolo and Credit Agricole, British banks Lloyds, Barclays and especially American ones such as Bank of America, appear to be oversold; They still have a large and growing revenue