The Best Commodity Investment For 2014

Fri, Dec 13, 2013

The Best Commodity Investment For 2014  is likely one of the worst of 2013.

In fact, it’s one of the worst commodity investments for 2012. And 2011 too.

It’s so bad only a true  Contrarian Investor could love it right now.

But the way things are shaping up, with three major catalysts for a turnaround in the works, it looks increasingly like coal will be the best commodity investment to make for next year.

Top Commodity Investment for 2014: Three Reasons to Buy Coal Now

There are a number of reasons to like coal investments right now.

The first reason is Commodity Investments are generally out of favor right now.

Everything from gold, to silver, to agricultural commodities, has fallen into a downtrend.

There aren’t many catalysts for immediate turnarounds in these commodities either. At best, they will likely hold up. Maybe even increase 10% or so. At worst, they all could drop another 20% to 30% across the board.

The two commodities which have held up the best over the last few years are copper and oil. Both of these, however, are facing significant oversupply situations. Especially oil. And will watch their prices decline until they catch up with most other major commodities.

Coal, on the other hand, has had such a disastrous run over the last few years, the industry has had to make some major adjustments. Coal mines have been shut down. Coal prices have fallen hard. And most of the oversupply of coal has already been worked off. That’s all great sign the bottom in coal prices has already come.

The second reason is that coal prices are starting to move up.

The chart below shows the current situation for coal supply and prices in China, the country that will have to be the driving force behind a rebound in coal prices:

 

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You’ll quickly notice the trend over the last few years.

There has been mainly large stockpiles of coal in China. And between 2008 and 2012, those stock piles were growing and growing.

As they grew coal prices dropped. Coal mining companies went from small profits to big losses. And shares of coal mining stocks dropped even further.

That all changed in 2012. Coal stockpiles started to be drawn down. And as supply declined, prices went up.

This is a trend we expect to continue. And if it does, coal investments are going to be far and away the best commodity investment for 2014.

The third reason I expect coal investment to have a great year ahead is because some “smart money” is finally starting to invest in coal.

Exhilway Global, the largest emerging markets private equity fund in the United States, recently announced it raised $200 million to invest. The fund has committed the capital to buy coal and iron ore mines in Turkey, Kazakhstan and Indonesia.

This is big news because Exhilway knows emerging markets and is going to extensive research before raising and committing $200 million in capital into a single idea.

In the end, it’s just another sign the smart money likes coal as a commodity investment even though few others do.

Top Commodity Investment for 2014: The Signs of a Turnaround in Coal Emerge

These are all the major reasons why coal is set up to be one of the best commodity investments in the year ahead.

Finally, the reason to start moving into coal now, is the coal stocks are starting to anticipate the rebound.

Not surprisingly for contrarian investors, the coal stocks leading the rebound have been the worst performers over the past few years.

Alpha Natural Resources (ANR) fell 85% between July 2011 and August 2013. Arch Coal International (ACI) fell 80% over the same time period. Walter Energy (WLT) was on a similar slide. Its shares fell more than 85% in the two-year coal downturn.

Those three are now up an average of more than 30% each since August.

This is how a rebound begins. And since these stocks are down so much, they have much, much more to go.

As coal recovers in 2014, coal mining stocks will continue their ascent, and make coal investments the best commodities sector to invest in for 2014.

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Authorship: By Austin Wells