Has coal bottomed by now?

Anyone is interested in coal? Likely not! I bet no one wants to even talk about it. But believe or not, coal will not disappear in our life time and it is still one of the major energy sources around the world. Even in the US when the use of coal has consistently decreased over years due to cheap natural gas produced, half of our electricity generation is still relying on coal. Don't even mention in other countries where natural gas is several times more expensive. In short, coal will still be demanded in the foreseeable future. In the past several years, however, the coal supply has relentlessly decreased due to bankruptcy of many coal mining companies and shutdown of increasing numbers of coal mining projects because of depressed demands. At some point, demands will outpace supplies and when this happens, it may create a shortage of coal supplies since it usually takes years to restore a dead coal mine to its full production capacity. The million dollar question is whether the coal sector has bottomed? The recent move of BTU may make people think so.

If anyone is watching Peabody (BTU), the world largest coal mining company, you can certainly understand that brutality may still not be a strong enough word for BTU, as in the past 4 years it has experienced an epic crash from its peak of over $70 to below $2 recently. The trend is absolutely downwards. But in the past week or so, BTU is popping up and breaking out this 4 years downtrend. It jumped from $1.5 to $2.5, a huge move (+65%) not seen for years. Importantly, this move has made it go beyond the downward trend line, a bullish break-out. Does this mean a bull trend is starting now?  I'm not so sure yet. This huge move seems to be related to the rumors that BTU is hiring a bank for restructuring its debt in order to avoid bankruptcy. Due to heave short interest that most people were shorting BTU, this news may likely trigger a short squeeze to propel the moonshot for BTU.

Watch BTU closely to see if it can hold up its support line around $1.9. If it can and start to move up again without further unexpected positive news, then a trend change may indeed be considered for the coal sector. Buying at that time will be much safer if you want to catch up the early train. After all, it is still too early to say the bottom for coal is in until we see a clear sign.