Massey Energy's ACCELERATING Growth

During its 2Q08 Earnings Report today, Massey Energy (MEE), the 4th largest coal producer in the United States, provided some pretty EYE-opening guidance related to its Coal Sales and Production Targets for 2008, 2009 and 2010.

The one HUGE takeaway for me is the impressive ACCELERATION in COAL Prices this company sees through all the way into 2010...clearly Massey is 'banking' on continued growth in demand for the commodity (specifically metallurgical or coking coal as MEE is one of North America's Largest suppliers of the coal required for the manufacture of steel).

Let it be known that I also greatly respect Massey's TRANSPARENCY and the fact that they're able to be SO transparent given the current state of the U.S economy. It's not too often you see public companies in a RECESSION backdrop providing AGGRESSIVE GROWTH forecasts three years out...An impressive sign of management confidence if you ask me.

http://www.reuters.com/article/rbssEnergyNews/idUSN3137963420080731

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MEE's 2008 Forecast:
* Production: 41.5 to 43 million tons

* Avg Price: $65 to $66 per ton

* Estimated Coal Sales: $2.8 Billion



MEE's 2009 Forecast:
* Production: 46 to 48 million tons

* Avg Price: $84 to $92 per ton (34% price increase over 2008)

* Estimated Coal Sales: $4.1 Billion (46% Growth over 2008)



MEE's 2010 Forecast:
* Production: 50 million tons

* Avg Price: $115 to $132 per ton (40% price increase over 2009)

* Estimated Coal Sales: $6.2 Billion (50% Growth over 2009)

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Other Misc. Notes from MEE's 2Q08 Results:

* MEE's total coal exports increased by 83% and sales of metallurgical coal were up over 36%.

* Massey's produced tons sold was up 8% year over year to 10.8 million tons

* MEE's avg 2Q08 coal price sales realization was $65.78 per ton...$14.38 per ton higher vs. 2Q07 (a 28% price increase)

* Metallurgical coal prices increased by 52% year over year (2Q08's prices were higher by $37.42 per ton)

* Metallurgical coal made up 28% of 2Q08 MEE coal shipments (vs. 2Q07's 22%) and contributed to 46% of total coal revenues

* About 1/3 of MEE's total 2.3 billion tons of coal reserves are metallurgical (coking) coal

Data Courtesy: Reuters
Full Disclosure: I own shares of MEE.

Highly NUKED - A Glowing France

While ELECTRICITY in the U.S. is 20% Nuclear, France relies on NUCLEAR energy to power 80% of its total country's electricity needs !

Electricite De France (...not listed in the U.S. but trades publicly in France on the Paris Stock Exchange with a $100 Billion marketcap...), manages all 59 nuclear power plants in the country and is France's largest electricity generation and distribution company. 'EDF' was founded/formed by the government in 1946 and then made public nearly 50 years later as a limited liability company in 2004. Per year end 2007 company filings, France's government still owned a majority 85% stake in the energy company. According to Wikipedia, Electricite De France'a grasp is far-reaching and not just restricted to France..in 2003 the company produced about 22% of the total electricity consumed by the European Union (The EU).

* Anecdotally thinking, I'm not the biggest fan of nuke energy because I'm STILL not convinced We (as a PEOPLE) have found ourselves a safe, clean, fea$ible and repeatable way to permanently dispose of its RadioActive WASTE (by-products of the process used to create/generate nuclear energy). FYI, reading Wiki's entry below did NOTHING to assuage my recently coined condition of 'nuke nervousness' :

http://en.wikipedia.org/wiki/Nuclear_waste

With that being said, clearly the NUKE story has some traction and fundamentals in its favor..and not just record high Crude Oil prices (although that is HUGE). Nuclear energy is THE cleanest burning major alternative fuel. According to the June 2008 issue of The Economist, "Nuclear reactors are the One PROVEN way to make carbon dioxide-FREE electricity in large and reliable quantities that does not depend (as hydroelectric and geothermal energy do) on the luck of the geographical draw."

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* Also, just for the record + in another concerted effort to mention something else unique/notable about France's economy, France is the #1 Tourist destination in the WORLD. According to the World Tourism Organization (UNWTO), France entertained 82 million unique tourists in 2007. The 2nd and 3rd most popular international tourist destinations were Spain (60 million) and the U.S. (50 million).

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* FYI, COAL is the Largest source of Electricity for the United States, fueling about 50% of the country's total power needs. Per my 6/25/08 post titled 'U.S. Electricity Consumption By Source' :

1. COAL -- 50.0%

2. NATURAL GAS -- 20.3%

3. NUCLEAR -- 20.1%

4. HYDROELECTRICITY -- 6.0%

5. OIL (PETROLEUM) -- 3.6%

Data Courtesy: The Economist, Wikipedia and The UNWTO

Natty Gas Buses-A-Move

According to the CEO of Chesapeake Energy (CHK), Aubrey McClendon, 20% of All buses operating in the United States are fueled by Natural Gas.

Looking Overseas, currently 1/7 of all cars in Argentina and 1/4 of all cars in Italy run on natural gas. According to T. Boone Pickens, there are a total of 8 million vehicles in the world that run on Natural Gas but only 142,000 of these are in the U.S. (Can you say 'GROWTH market appeal' ?)

Anecdotally thinking..Maybe the Pickens Plan has a chance AfterALL ? (Or at the very least give US something resembling an ENERGY PLAN focused on switching OUR country's transit fuel of choice to something Cheaper, Cleaner, Domestic and More Abundant like Natty Gas.)

* For more info on the Pickens Plan you can visit: http://www.pickensplan.com/ (...Also feel free to check out my 7/18/08 post titled 'REF - The (Revolutionary) Pickens Plan...)

The 1/2 TRILLION $ Energy Services Industry

For Reference's sake + According to Lehman Brothers, OIL and GAS companies will spend $420 BILLION on Energy Exploration and Production activities worldwide in 2008.

This represents a 20 percent increase over 2007 E+P spending.

Members of the Oil + Gas Services Industry (the 'investible' beneficiaries of the above $pending) : National Oilwell Varco (NOV), Transocean (RIG), Halliburton (HAL), Schlumberger (SLB), Baker Hughes (BHI), Noble Corp. (NE), Diamond Offshore Drilling (DO), Pride International (PDE), ENSCO International (ESV), Rowan (RDC), Hercules Offshore (HERO), Nabors Industries (NBR), Atwood Oceanics (ATW), FMC Technologies (FTI), etc.


Data Courtesy: Lehman research
Full Disclosure: I own shares of RIG.

The U.S - PROOF Steel Industry (A New ERA)

WHAT Recession ?!? WHAT Slowdown ?! The numbers speak for THEMSELVES. Despite a fragile and declining U.S. economy (...shout out to the Alan Greenspan-induced housing bubble...), STEEL companies are earning record Profits selling into the demands of Emerging economies seeking basic INFRASTRUCTURE (exp's of emerging economies = the 'BRIC' countries - Brazil, Russia, India and China). As market commentator Jim Cramer rightfully pointed out a year or so ago, we have entered a brand new ERA for these once massively U.S. demand-dependent steel companies. An ERA that allows steel manufacturers to maintain break-neck profitability and handily 'beat' wall street earning expectations during a U.S. recession.

Time to talk numbers + unveil the Empirical evidence..According to the U.S. Commerce Department, shipments of Steel to the United States declined 11% year over year during the first 5 months of 2008 to about 12 million metric tons. DESPITE the slowdown in the U.S., the worldwide Steel industry continues to GROW.

Witness the below presented EVIDENCE courtesy of the 2Q08 earnings results just recently reported by Globally-diversified steel manufacturers, U.S. Steel (X) and ArcelorMittal (MT). FYI, U.S. Steel is the Largest U.S. steel company by marketcap while ArcelorMittal is the WORLD's largest steel manufacturer by just about any measure you and I can think of (production, marketcap, profits, etc.) :


Highlights from U.S. Steel's 2Q08 (X) :
* U.S. Steel recorded a 123% year over year growth in PROFIT and beat wall street earnings estimates by 50% ! (Stripping out non-recurring items, 'normalized' earnings per share profit was $5.67 or $668 million, topping the $3.82 average estimate of 14 analysts in a Bloomberg survey...this compares to X's 2Q07 earnings of $2.54/share or $302 million)

* Total Company Sales rose 60% to a quarterly record of $6.74 billion vs. 2Q07's $4.23 Billion

* U.S. Steel, which can produce about 27 million tons of the metal a year, has three main units: North American flat-rolled steel; Europe, where it supplies central and Western Europe from mills in Serbia and Slovakia; and tubular products, which sells metal to the oil industry for pipelines...Profit in the flat-rolled unit climbed more than fivefold to $478 million, the company said. Earnings at U.S. Steel Europe increased 22 percent to $298 million, while profit from the tubular business rose 82 percent to $177 million.

* U.S. Steel said it expects results from sales of flat-rolled steel to "improve substantially'' in 3Q08 and for profit from the tubular unit (levered to the oil + gas industry) to rise as prices increase. 3Q08 earnings from the European unit will decrease because of higher raw material costs and planned maintenance, the company said.

* U.S. Steel CEO John Surma on Outlook: "We expect another excellent quarter with continued earnings improvement as price increases implemented during the second quarter and early in the third quarter are expected to improve average realized prices for each of our reportable segments."


Highlights from ArcelorMittal's 2Q08 (MT) :
* Profits increased by 114% year over year to $5.84 Billion and beat analysts expectations by 50% ! (analysts surveyed by Reuters predicted a 2Q08 profit of $3.97 Billion...MT's 2Q07 profits were $2.72 Billion or $1.97/share)

* Total Company Sales were up 39% vs. 2Q07 to $37.8 BILLION (analysts expected $34.7 Billion)

* Total steel shipments for 2Q08 were 29.8 million metric tons as compared with steel shipments of 28.7 million metric tons in 2Q07 (2% increase in shipments)

* ArcelorMittal CFO Aditya Mittal on Outlook: "We are operating at high levels of capacity, we are close to capacity and can't produce much more steel...The strongest growth is coming from newly industrializing economies, such as Brazil, Russia, China and Eastern Europe...In contracts which have been renegotiated and closed, we have achieved significant (price) increases and we expect that trend to continue until the end of the year and in 2009."

Sources:

bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=X
uk.reuters.com/article/companyNews/idUKL055720920080730?
bloomberg.com/apps/news?pid=20601085&sid=aum3d.CtKKGY&refer=europe


Data Courtesy: Reuters and Bloomberg
Full Disclosure: I own shares of MT.

COAL PlayED - Another Day, Another T - O !

Another Day, Another gigantic Takeover in the COAL space. This time the deal's worth about $14 BILLION ! The Canadian Acquirer is Teck Cominco (TCK) and the Target is Fording Canadian Coal Trust (FDG). The deal's PREMIUM is only 12% but that's of course on TOP of Fording's year over year and year to date stock price appreciation of 180% and 130%, respectively.

bloomberg.com/apps/news

* Per Bloomberg, while the worldwide bear market slowed mergers and acquisitions activity by 35% in the first half of the year, Takeovers of Energy and Mining companies jumped 33% DESPITE record high prices for both Coal and Crude Oil

* Fording is currently the World's 2nd Largest seller of seaborne Metallurgical/Coking Coal...Australia's BHP Biliton (BHP) is the World's Largest seller of seaborne Metallurgical Coal

* After consummating the transaction, Teck will become North America's Largest Exporter of COKING Coal (aka Metallurgical Coal)

* Teck Cominco is currently the World's 2nd Largest Zinc producer...with this transaction, Teck will reduce its reliance on the commodity as Zinc prices have plunged 46% in the past year (prices for coal have more than doubled over that same time horizon)

* The deal will be transacted with a combination of cash ($9.8 Billion) and Teck Cominco stock...Fording Canadian shareholders will receive $82 in cash and 0.245 Teck share per each share of Fording they hold...Teck plans to issue 36.9 million new shares of stock to help finance the purchase

* The Fording sale to Teck comes ahead of changes to Canada's tax rules regarding income trusts, which are high-yield securities that pay out almost all of their cash flow each month to investors. Finance Minister James Flaherty said on Oct. 31, 2006, that Canada would tax income trusts for the first time starting in 2011 to limit government revenue losses and halt more companies from adopting the structure...Teck estimates the total tax savings following the deal at about $22 a share, he said.

* The bid for Fording tops Cleveland-Cliffs recent $10 billion takeover offer for Alpha Natural Resources, which was the biggest in the industry when it was announced just two weeks ago...FYI + for more info on the recent $10 Billion Cleveland Cliffs takeover, please search the Archive for my 6/17/08 post titled 'Steelmaking Coal Play Gets A Bid'.

Data Courtesy: Bloomberg

An Interview with the President of IRAN

On July 28th, 2008, the President of Iran, Mahmoud Ahmadinejad, sat down for a television interview in Tehran with NBC's Brian Williams. I highly recommend accessing the transcript of the pretty fascinating interview using the MSNBC link below...(if you're looking for the REAL thing - a webcast of the TV interview - you should also be able to find it using the below link).


http://www.msnbc.msn.com/id/25887437/


* M.A. on Iran's Relations with the U.S. --> "Well, this question which I am asking from American statesmen, when it comes to the Iranian people, what road do they want to choose? What approach? For more than 50 years now the policy of American statesmen has been to confront the Iranian people. And our people, to a large extent, have become acclimated with this situation, and we have tried to work around it. Today, we see new behavior shown by the United States and the officials of the United States. My question is: Is such behavior rooted in a new approach; in other words, mutual respect, cooperation, and justice? Or this approach is a continuation in the confrontation with the Iranian people but in a new guise? If this is the continuation of the old process, well, the Iranian people need to defend its right, its interests as well. But if the approach changes, we will be facing a new situation. And the response by the Iranian people will be a positive one...I think that if this process is continued by the American government in the not-so-distant future, the situation will change. This means for the Americans to recognize the rights of the Iranian nation, recognize the rule of law, and also recognize a fair and just situation which needs to prevail. These are not difficult demands. I believe that American politicians, statesmen, should not be very much affected by the prevailing media environment. If they want to change their policy towards Iran, well, they have to announce that and take actual steps towards that. I think that this benefits the American government, and it serves the interests of all of us. We'll welcome such an effort."


* Iran's Nuclear Enrichment Program --> "What is there for us to bargain over? Over our own right? The rights of other peoples? Our own independence? No. We can cooperate in an environment which benefits all. All will benefit from such a environment. And there is no need for any party to lose out. In a fair setting, everyone will benefit...we are not working to manufacture a bomb. We don’t believe in a nuclear bomb. We also think it will not effect political relations. The Zionist regime (referring to the U.S.) which you refer to earlier has an arsenal of hundreds of nuclear warheads. Has this arsenal helped the Zionists to prevail inside the conflict inside Lebanon? No. Again, did nuclear arms help the Soviet Union from falling and disintegrating. For that matter, did a nuclear bomb help the U.S. to prevail inside Iraq or Afghanistan, for that matter. Nuclear bombs belong to the 20th century. We are living in a new century. We think that when it came to the nuclear issue, an inappropriate measure or action was taken. Nuclear energy must not be equaled to a nuclear bomb. This is a disservice to the society of man. Nuclear energy is very beneficial and very clean, by the way. All nations must use it. A bomb, obviously, is a very bad thing. Nobody should have such a bomb. If there are parties that claim a bomb is a bad thing, it’s only appropriate for them, as a first step, to destroy their stockpiles. Destroy their bombs and allow clean energy to be utilized by all. I ask you if today, 1,000 nuclear power plants were up and running, would we have seen an increase in the price of oil? I am sure we wouldn’t have had such high prices which is affecting the economies of all countries. It has created problems for their economies. Nuclear energy is a renewable energy. It’s clean. It’s environmentally friendly and all nations must possess it. And there should be a very concrete, if I can use the word, set of regulations, a fair set of regulations which will control the activities of all nations to supervise things, without discrimination. To supervise without discrimination. Allow nations to have access to such clean energy. There are parties, which have bombs themselves, and they have nuclear energy as well and unfair basis and on a discriminatory basis, they are preventing other people — other parties, from utilizing clean nuclear energy."


* The WW Price of OIL --> " Well, a fair price — this has to be determined inside the environs, if I can use the word, of economy. We think that the market should be free and — these commodities should compete in a free setting or conditions. At the moment, the situation is not realistic. It is rather manufactured and the prices are not realistic as a result. Well, I can’t give you an exact figure right now (for the 'Fair' price of Crude Oil) because the market is not a real market. Some powers are manipulating the prices inside the market. Do you really think that the price of oil is the end result of a healthy competition inside the market? It’s not."


* The Future of Iraq --> "Well, in a long-term approach, I believe that the Iraqi people will overcome, prevail over, in other words, their present problems. But in the immediate future, everything depends on the behavior as shown by the American government. If the American government and officials take up a rational, a humanitarian approach, the conditions inside Iraq will improve very quickly. But if not, if they want to impose their will on the nation of Iraq, historical precedence tells them that they will not abide by this. And they will resist. Under such conditions, obviously the Iraqi people will incur some damages. But by the end of the day, they will prevail. They will succeed. But the main damages will be incurred by those parties which decided to disrespect the Iraqi nation."


* Mahmoud Ahmadinejad is running for Re-election in 2009


* Iran is currently experiencing inflation of about 20%

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RTOB on the Significance of GEOpolitics :

While this is not a political blog(site), it is a fact that Politics and related decision-making from those in Power can often directly impact the prosperity and investing climate of a region. In today's increasingly Globalized (and therefore vulnerable/sensitive) world, some geopolitical issues can become derisive enough to threaten the collective relations and prosperity of SEVERAL regions.

If the U.S. were to go to war with Iran (Pick A Reason, Any Reason - 1. Iran won't quit its nuclear enrichment program and is probably developing nuclear bombs, 2. the President of Iran is a sworn enemy of Israel and has stated many times that he plans to 'wipe Israel off the map', 3. Iran continues to fund Anti-American violence in Iraq and Afghanistan, etc.), expect the Global Economy to suffer some Painful and Widespread 'SHOCKS'. Given the fact that Iran is one of the world's largest CRUDE OIL producers (and given the fact that Crude Oil is one of the World's most common and relied upon input materials), a WAR between the 2 countries would create a pretty large mess in terms of disrupting the current functioning of our Global markets (Can you say Economic HeadWIND ?!...More like Economic HeadHURRICANE !).

While I do not believe the U.S. is headed to war with Iran anytime soon (Pick a Reason, Any Reason - 1. that little war in Iran, 2. that little war in Afghanistan, 3. that little housing recession in the U.S., 4. that little deficit, etc.), the possibility still exists and for that reason I chose to reference the recent television interview with Mr. Ahmadinejad above.


Data Courtesy: MSNBC and NBC

The WCI's Coal Hard Facts

Coal-related Facts courtesy of the World Coal Institute:


worldcoal.org/assets_cm/files/PDF/

* Global Coal Useage: Coal supplies 25% of the World's primary energy needs and generates 40% of the World's Electricity (per cited 2005 data)

* Global Coal Production: 2006's Estimated Global Coal Production was 5,370 Metric Tons...an 8.8 % increase over 2005's 4,934 MT

* Coal and STEEL: About 13% of Total hard Coal production is currently used by the STEEL industry (about 717 Mt)...About 70% of TOTAL Global Steel production is DEPENDENT on Coal (Coking Coal/Metallurgical Coal)...Australia is the World's Largest Exporter of Coking Coal + exported an estimated 121 MT in 2006

* Reserve Lives of Coal, Oil + Gas: At current production levels, proven coal reserves are estimated to last 147 years. In contrast, proven oil and gas reserves are equivalent to around 41 and 63 years at current production levels respectively

* Over 68% of the World's Crude Oil reserves are concentrated in the Middle East and Russia

* Over 67% of the World's Natural Gas reserves are concentrated in the Middle East and Russia

* Germany is the World's Largest 'Brown Coal' producer and produced an estimated 914 Mt in 2006 (a 1% increase over their 2005 production) ...Brown Coal (aka Lignite) is the lowest grade of coal and is used almost exclusively as a fuel for steam-electric power generation

Data Courtesy: World Coal Institute.

CAT 2Q08 Earnings Recap

Caterpillar's 2Q08 Earnings Report Stats:

Beat ? --> Yes (reported $1.74/share vs estimates of $1./share...Year over year EPS growth of 40% vs. 2Q07's $1.24/share)

Profits --> Up 34% to $1.1 Billion (from $823 million)
Sales --> Up 20% to $13.62 Billion (from $11.36 Billion)

* Currency Effect --> the weaker U.S. dollar added $384 million to Sales (or 3%)...it also negatively impacted operating profits by about $62 million (or 5.5%)

Machine Sales: Up 17% to $8.5 Billion
Engine Sales: Up 28% to $4.3 Billion
Financial Product Sales: Up 11% to $827 million

* Sales Breakdown By GEO:
1.) Asia Pacfic sales grew by 52%:
AP Machinery sales: Up 50% to $1.4 Billion
AP Engine sales: Up 57% to $745 million

2.) Europe-Africa-Middle East (EMEA) sales grew by 22%:
EMEA Machinery sales: Up 15% to $2.6 Billion
EMEA Engine sales: Up 34% to $1.7 Billion

3.) Latin America sales grew by 27%:
LA Machinery sales: Up 23% to $1.0 Billion
LA Engine sales: Up 42% to $371 million

4.) North America sales grew by 7%:
NA Machinery sales: Up 8% to $3.5 Billion
NA Engine sales: Up 9% to $1.5 Billion

Other Highlights + Guidance:
* CAT's 2008 FY Guidance: CAT expects Total 2008 Company Sales of $50 Billion and EPS of about $6.00 per share (fyi, this means CAT is currently trading at a 12 P/E to its 2008 Earnings)

* CAT's 2008 Material Cost Guidance: CAT expects total 2008 material costs to increase by about 2.5-3.0% vs. 2007...this comes out to about $600 million

* International Sales made up 60% of total company sales (compared to 55% last year)
* International sales grew 30% year over year

* 2Q08 Machine + Engine Sales Operating Profit: $1.43 Billion or 11.2% of Sales (vs. 2Q07's $1.12 Billion or 10.7% of Sales)* 2Q08 Manufacturing Costs: Up 1.4% or $143 million vs. 2Q07 (material costs for inputs like steel were 2/3 of the total cost increase...freight/fuel costs made up the other 1/3)

* Labor Base: CAT ended 2Q08 with 105,322 employees (up 9% or 9,000 from 2Q07)

Conference Call Quotes:

* CAT Director of I-R Mike Dewalt on International Growth: "This quarter, 60% of our sales and revenues were outside North America. A year ago in the second quarter, that number was 55%. But I think to really appreciate the magnitude of the shift in geographic mix, we need to go back and look at what happened over the past two years, when North America was coming off of its peak. Compared with the second quarter of 2006, Asia Pacific is up 84%, Europe, Africa, Middle East is up 60%, and Latin America is up 55%. And during that same period, sales and revenues in North America were down 3% and actually closer to 13 if you adjust for Progress Rail which we acquired at the end of the second quarter of 2006...China has been very good growth. Actually I do not see any signs of declining demand in China. It looks pretty good. Now again, our sales to a degree are limited by production."

* Mike Dewalt on the Mining Industry + Related Equipment Sales: "Mining is doing well, particularly for coal. Coal prices are up substantially from last year and U.S. exports of coal are rising. Sales to coal customers were well up from the same period a year ago."

* Mike Dewalt on a Weakening Western Europe Outlook: "We have, however, lowered our expectations for European machine sales. Like other companies, you have heard from, we have seen declines in Europe. We expect those declines to continue through 2008. We have adjusted our outlook accordingly and we expect to lower production schedules somewhat in Europe, particularly for smaller machines."

* CAT CEO Jim Owens on Commodities + Impact to Material Costs: "Commodity prices, as we have indicated several times, could drop fairly significantly. I am talking 30 percentish and still be at levels that would be attractive to drive investment in the mining and oil and gas industries because there has been such a prolonged period of under investment...I am a little concerned, very specifically, about the steel industry because there is more concentration globally in the steel industry. The energy costs are clearly up quite a bit. Iron ore pellet prices are up quite a bit. And they have a pretty strong position to push a lot of that through to the market...I think if there is a significant decline in commodity prices, from current levels, then you will still see pretty strong demand because of the, again, very prolonged under investment that occurred in global mining and in global energy. And that would be coal, oil, gas, power distribution, et cetera. Those things play to our strengths. And I think even with the commodity price decline, which is likely in my view, we will see continued strong demand in those sectors."

* CAT (Mike Dewalt + Jim Owens) on timing of a U.S. Economic Recovery: "You know, it would be extraordinarily unusual for the U.S. not to be in a fairly significant recovery by 2010 in my view...you know, there is frequently this glass half-empty view that North America, the U.S. is declining and is going to get worse. I mean, it has been going down now for over two years. It is way off the peak. It is down order of magnitude new machine sales to users 40%, so you know, it has already seen quite a fall...It has dropped as much as it did in the last two recessions, the '91-'92 and the 2001-02 recession already, and will probably get a little worse. Then I think it will begin to recover. I do not know when that recovery is going to start as we get out to '09. We will give you the '09 outlook , but whether it is early '09, mid-'09, late '09, we'll see, but I would be very surprised if it isn't underway before we get to 2010."

* Mike Dewalt Summarizing CAT's 2Q08 Results: "Six key points here, just to summarize: first, we had a good quarter, our best ever for sales and revenues and profit. Despite severe weakness in the U.S., a weaker Europe, a negative product mix and a negative impact related to currency. Second, our costs are up from last year. But when you consider overall inflation, we are doing fairly well. In fact, manufacturing costs in the second quarter were only up 1.4%, and that includes labor, overhead and material costs. And considering where inflation has been, particularly for material costs, that is not too bad. That said, we still have a lot of room to improve. And we think we are doing the right things to drive that improvement. Okay, third point, in terms of the outlook, we do see a weakening picture in North America, Western Europe and Japan and they are all included in our full year outlook. Fourth point, our order backlog continues to be very strong. Commodity-related end markets are doing very well and from a geographic standpoint, the developing world continues with good growth. Point five, sales of many of our products are production constrained. For most large machines and engines, we are selling as much as we can make. And finally, we have a diverse business in terms of products, services, end-markets, and geographies. We have some that are doing very well and that are helping to offset very negative impacts from others. "

Full Disclosure: I own shares of CAT.

COP 2Q08 Earnings Recap

Conoco Phillips 2Q08 Earnings Report Stats:

Beat ?: Yes (reported $3.50 cents/share vs estimates of $3.33/share...21% earnings per share growth over 2Q07's normalized $2.90 per share)

Profits --> Up 13% to $5.4 Billion (from a normalized $4.8 Billion)
Sales --> Up 51% to $71.4 Billion (from $47.4 Billion)

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COP's Earnings by Business Segment:

1.) ENERGY EXPLORATION + PRODUCTION OPS:

E+P Profits: Up 90% to $4.0 Billion (from 2Q07's $2.1 Billion)

E+P Profit Per BOE: Up 273% to $25.12 per BOE (vs. 2007's Avg of $6.73)...BOE or Barrel of Oil Equivalent: a unit of energy based on the approx amount of energy released by burning One Barrel of Crude Oil)

Avg Realized International Oil Price: Up 83% to $119 per barrel (from 2Q07's $65)
Avg Realized International Nat Gas Price: Up 45% to $10.94 per BTU (from 2Q07's $7.55)

Total Energy Production: Down 8% to 2.2 million BOE per day from 2Q07's 2.38 million BOE per day

Energy Production Ex Lukoil: 1.75 million BOE (vs. 2Q07's 1.91 million BOE...a year over year drop of 8%...decrease in yoy production mainly due to the Venezuelan government's expropriation of the company's Venezuelan oil projects - this resulted in COP taking a $4.5 Billion charge in 2Q07)

Natural Gas Sales: 4.8 Billion cubic feet per day during 2Q08 (vs. 2Q07's 5.1 Billion)

Exploration Expenses: $288 million (vs. $259 million in 2Q07)

2.) MIDSTREAM OPS:

Midstream Profits: Up 59% to $162 million (from 2Q07's $102 million)

3.) REFINING + MARKETING OPS:

R + M Profits: Down 72% to $664 million (from 2Q07's $2.4. Billion)

R+M Profits Per Barrel: Down 53% to $2.33 per BOE (from 2007's Avg of $5.00)

U.S. Refinery Margins: $10.29 per barrel

International Refinery Margins: $6.70 per barrel

WW Refinery Capacity Utilization Rate: 93% (vs. 2Q07's 93%)

U.S. Domestic Refinery Capacity U-Rate: 94%

International Refinery Capacity U-Rate: 88%

R+M Expenses: $170 million (up 193% from 2Q07's $58 million)

4.) LUKOIL OPS:

Lukoil Profits: Up 47% to $774 million (from 2Q07's $526 million)

COP's Lukoil Daily Production: 448,000 BOE per day (equivalent to 215K Barrels of Crude Oil per day)...20% of COP's 2Q08 Energy Production came from Lukoil

* COP's 2Q08 Lukoil earnings include a $120 million adjustment in costs to reflect lower than estimated Lukoil earnings during the previous quarter (1Q08)

5.) CHEMICALS OPS:

Chemicals Profits: Down 74% to $18 million (from 2Q07's $68 million)

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Other Highlights + Guidance:

* 2008 Production Guidance: Excluding Lukoil, full year 2008 Production will average about 1.8 million BOE per day...Conoco's 3Q08 E+P Expenses will be around $375 million

* Free Cash Flow: COP generated $5.4 Billion in Cash during 2Q08...With this money COP: 1.) Repurchased $2.5 Billion of Conoco Phillips company stock, 2.) Funded $3.6 Billion of its capital spending program, and 3.) Paid $0.7 Billion back to shareholders in dividends.

* Stock Buyback Program: As part of its $10 Billion authorized Stock Repurchase program for 2008, COP plans to spend about $5 Billion buying back company stock during the 2nd half of 2008 (the company has already spent $5 Billion buying back stock during the first half of 2008)

* Shares Outstanding: COP's 'Float' or Shares Outstanding decreased by 6% year over year to 1.56 Billion shares (from 2Q07's 1.66 Billion shares)...Conoco's repurchase of company stock contributed 33% or 20 cents to 2Q08's year over year EPS growth of 60 cents. Since the beginning of 2008 COP has spent $5 Billion purchasing its own stock.

* Effective Tax Rate: 44% (vs. 2Q07's 41%)

* Cash On Hand: $787 million

* Return On Capital: 20%

* Debt To Capital Ratio: COP ended 2Q08 with $21.9 Billion in Debt and a 19% Debt to Capital Ratio

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Conference Call Quotes:

* COP CEO on 2008 Capital Spending + Stock Buyback Plan: "On share repurchase...(the) market can expect we are going to do $10 Billion share repurchase in 2008 and going at a rate of $2.5 Billion a quarter. Capital spending is going to be around $15 billion, maybe a little bit more, but $15 billion, $16 billion."

* COP CEO Jim Mulva on COP's International Projects: "See now, we recently signed interim agreement with Abu Dhabi National Oil Company (ADNOC) to develop the Shah gas field in Abu Dhabi and elsewhere in the Middle East, we approved the continued funding, moving forward for the development of the Yanbu Export Refinery project with Saudi Aramco. We’re pleased to be working with both ADNOC and Saudi Aramco on these world-class projects. It helps meet the growing demand for energy not only in the old Middle East but also around the world. We recently signed a MoU ('Memorandum of Understanding') with Petrobras (PBR), as you know the largest Brazilian Energy company, and with this agreement we hope to sort through opportunities to work together in our core businesses, upstream and downstream, as well as energy opportunities such as ethanol in Brazil."

* COP CEO on COP's North American Pipeline Project (Keystone): "In North America, our joint venture with TransCanada, we plan to expand the Keystone crude oil pipeline system, providing additional capacity of 500,000 barrels per day from Western Canada to the U.S. Gulf Coast...we expect to use it by taking Canadian crude all the way down to the Gulf Coast because there's good optionality to be in our refineries in Mid-Continent and Gulf Coast, both from Canada as well as from say Venezuela and other crudes that we can get from Mexico and other places around the world.

* COP CEO on Partnership with Brazil's Petrobras: "We’re merely looking at the opportunities on how we can participate in exploration and production both in Brazil as well as outside Brazil and then we also, with our large refining segment in North America, we kind of explore and ultimately, we’re having more crude oil production when there is an opportunities for us to be working with each other in the downstream part of the company and then for both companies...We need a lot of ethanol ultimately to blend into our gasoline and so we’re looking at the opportunities of being such large ethanol producer in Brazil and how Petrobras participates in that and whether there’s opportunities for us to be working with each other. So to go any further than that, we are really in initial phases of this study work of the MoU but we‘re really pleased to be working with Petrobras.

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Additional Misc. Conoco Phillips Info:

* COP is currently the 3rd Largest U.S. Oil Producer by marketcap

* Conoco purchased Burlington Resources in 2006 for $35 Billion to become the U.S.'s Largest Natural Gas Producer

* In addition to being the U.S.'s largest natural gas producer, COP is also the 2nd Largest Oil Refiner in the country (Valero or VLO owns the largest refining capacity in the United States)

* COP owns and operates 12 Refineries in the U.S. - 2 of which are part of a joint venture with Canada's Encana (ECA)...COP also owns refineries in Europe (Germany and the United Kingdom)

* COP has previously stated it earns $130 million, or 8 cents a share, for EACH $1 increase in Oil prices, and $33 million, or 2 cents, for EACH 25 cent gain in Natural Gas prices per thousand cubic feet.

Full Disclosure: I own shares of COP.

ArcelorMittal's $6 Billion IRON ORE Plan

ArcelorMittal (MT), the World's Largest Steel company, plans to spend about $6 Billion in the next 5 years in order to boost the output of IRON ORE from its own mines to 80% of its total STEEL production requirements by 2014.

* Iron ore is an essential raw material consumed in the manufacture of STEEL.

* ArcelorMittal's current internal iron ore 'attach' rate is 45%.

* Consistent with the company's above strategy of reducing dependence on external suppliers of its raw materials, Arcelor is also looking to boost internal output of COKING COAL (another essential ingredient for steel). Per my 4/06/08 post labelled 'A Triple for Coking Coal Prices', Coking Coal prices more than tripled from $98/metric ton in 2007 to $300/metric ton in 2008.

* Arcelor's current internal coking coal 'attach' rate is 20%.

ArcelorMittal_to_meet_80%252525_of_iron_ore_needs_from_own_mines_by_2014.html

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* Related to the Always active MT (and iron ore I guess since this involves Brazil and Brazil is the world's largest exporter of iron ore), ArcelorMittal continues to Grow its steel operations in Brazil and recently announced a 70% stake in Brazillian steel processor and distributor, Manchester Tubos e Perfilados S.A. Since Manchester is a privately-owned company financial terms of the deal haven't been disclosed. Per the below link :

arcelormittal-reinforces-its-steel-service/story.aspx?guid=%7B31863225-

- About the TARGET...Manchester was founded in 1989 and is privately owned. It serves the construction segment, which represents 50% of its activity, as well as the industry and automotive segments. Its capacity is 240,000 tonnes per year for end products, and 60,000 tonnes per year for processed products (cut to length and slit products). 2007 net sales were approx $172 million (270 million Reals). The company employs 500 people.

- With the acquisition of Manchester, and with its existing partnership with Gonvarri, ArcelorMittal will widen its product offering in the distribution segment in Brazil...The Group will now offer an extended range of flat products (coils and blanks), profiles, tubes and pipes.

* Lastly, for details related to MT's Gonvarri partnership please refer to my 6/19/08 post labelled 'ArcelorMittal's Voracious Steel Appetite'

Data Courtesy: Thomson Financial, Steel Guru and MarketWatch
Full Disclosure: I own shares of MT.

A Windy Proposition - MarketShare + Cost

According to the Brussels based industry group, Global Wind Energy Council, WIND Power made up 1% of the World's Electricity Production in 2007 and is expected to make up 3% in 2012.


According to EIA data, U.S. Electricity from --- COSTS :
* WIND: costs about 8 cents per kilowatt-hour

* SOLAR: costs about 15 cents per kilowatt-hour

* COAL-fueled electricity: costs 4 cents per kilowatt-hour


Also worth noting, Rising material costs (steel) have driven up wind turbine prices by about 20% since July 2007.


http://www.bloomberg.com/apps/news?pid=20601109&sid=a9B6qZ11iwwc&refer=home


Data Courtesy: Bloomberg

Will Cox Spread SEC Order To ALL ?

In testimony delivered today during a U.S. Financial Services Committee hearing in Washington, Securities and Exchange Commission Chairman Christopher Cox stated that he is interested in SPREADING recently imposed Short-Selling restrictions from a small group of 19 financial stocks to the ENTIRE stock market.

news/newsfeeds/articles/djf500/200807241703DOWJONESDJONLINE000879_FORTUNE

Quoted from the Above Link:
* The SEC issued an emergency order last week, which took effect Monday (7/21/08), to tighten requirements for short sales focused on 19 U.S. financial companies including Fannie Mae (FNM) and Freddie Mac (FRE), the federally sponsored housing-finance giants. In addition to the two Government Sponsored Enterprises (GSE's), the order included 17 Federal Reserve primary dealers in U.S. Treasury debt. FYI, for a list of The U.S. Fed's Primary Dealers please refer to my 3/16/08 post labelled 'REF - U.S. Fed Primary Dealers (Discount Rate)'.

* SEC Chairman Cox said the 19 stocks were originally targeted because they were institutions able to borrow from the Federal Reserve. But he said the SEC aims to extend "operational protections" marketwide.

* Short sellers sell borrowed shares which they hope to replace later at lower prices, profiting from stock price declines...The SEC has put restrictions in place in recent years to curb illegal "naked" short sales, in which stocks are NOT borrowed before short sales. That effort was extended with the emergency order which calls for borrowing or arranging to borrow shares in advance of short sales in the 19 targeted stocks.

* Cox told reporters after the hearing that the SEC staff also is discussing changes that would require disclosure of significant short positions, similar to requirements to divulge big long position in stocks.

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RTOB - When there's only TWO SIDES to the Stock Market (Up or Down...Long or Short...Bull or Bear...Black or Red), there's No way one can assert that increased SEC regulation imposed on one side will NOT benefit the other...Skipping the always lively ethics debate (Is the SEC overstepping its 'free market' bounds ?), I'd rather focus on the decision and what it represents. Besides being a psychological victory for those individuals 'long' stocks (and possibly a catalyst leading to another short-squeeze induced stock market rally), this event also marks the Beginning of a New ERA...An ERA that is governed by a much more active and vigilant Securities and Exchange Commission. Maybe I'm being too optimistic, but it seems like the 'New' SEC is More Willing THAN EVER to SWIFTLY Re-examine and Address stock market MANIPULATION. Regardless of your SIDE, score one for the Longer term Sustainability of the GAME.

Data Courtesy: CNN Money
Full Disclosure: I own shares of GS.

Keeping Y-T-D Tabs On The DOW 30

Check out the below 2008 Year To Date (YTD) Performance Chart of the 30 companies comprising the U.S.'s Dow Jones Industrial Average (Market Index) :

* Year To Date 2008 (through 7/24/08), the Dow is down 14% or 1,900 points...Year over year (Jul 25, 2007 - Jul 24, 2008), the Dow is down 17% or 2,400 points

* Only 5 out of the 30 DOW companies (less than 17% of the index) are 'net gainers' on the year - Dupont (DD), IBM, Walmart (WMT), McDonald's (MCD) and Johnson & Johnson (JNJ)

* Only 2 of these 5 'gainers' have convincing gains - Walmart (+22%) and IBM (+20%)

* In terms of DOGS of the DOW, 3 companies have lost over 40% of their marketcap during 2008 - AIG (-48%), Merk (-45%) and General Motors (-41%)

* Interesting to note the right-most performance column (performance since 7/15/08)...Bank of America (BAC) is up 80% in less than 10 days ! Don't get too excited though..their still down almost 20% on the year.

http://seekingalpha.com/article/86776-dow-30-performance-since-7-15

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FYI, Track the value and performance of the U.S.'s Dow Jones Industrial Average using stock ticker .DJI

Data Courtesy: SeekingAlpha.com
Full Disclosure: I own shares of IBM.

BTU 2Q08 Earnings Recap

Peabody Energy 2Q08 Earnings Report Stats:

Beat ?: YES (reported $0.86 cents/share vs estimates of $0.54/share...115% earnings per share growth over 2Q07's 40 cents)

Profits --> Up 115% to $233 million (from $108 million)
Sales --> Up 43% to $1.53 Billion (from $1.07 Billion)

2Q08 Total Coal Production Sales Vol --> 59.8 million tons (vs. 57 million tons during 2Q07)

2Q08 Export Coal Production Sales Vol --> 7 million tons (12% of total production)...The Wyoming Powder River Basin (PRB) contributed to 14% of exports or about 1 million tons

Other Highlights + Guidance:

* BTU now generates more than 50% of its Profits from outside of the U.S. compared to just 1% five years ago

* BTU's Australian Metallurgical Coal contracts (for deliveries through March 2009): priced at $300 a metric ton, or about TRIPLE year-ago pricing

* BTU's Seaborne Thermal Coal contracts were being priced at $125 per metric ton, more than double a year earlier

* Total 2008 U.S. Coal Exports are expected to increase by 50% this year to at least 75 million tons, according to the U.S. Energy Department (EIA), as European utilities purchase supplies normally used by generators in the Northeast

* Australia produces 60% of the world's Seaborne coal used in STEEL-making
* BTUs Australian production volumes increased 15% year over year...BTU averaged prices of $95 a ton for all Australian coal (thermal + met) production, compared to $55/ton during 2Q07
* BTU's 2Q08 Australian coal production margin exceeded $43 per ton
* BTU has much as 14 million tons of Australian coal that's unpriced for 2009 and up to 24 million tons available for resale in 2010, of which nearly half in both cases is metallurgical coal (the highest margin type of coal).

* China's Seaborne Thermal Coal Demand Opportunity: China has 'idled' more than 60 coal plants because coal inventories have shrunk to less than 3 Days Supply...China has also trimmed its coal exports by more than 8% this year and announced plans to lower or eliminate its coal import tariffs

* India's Seaborne Thermal Coal Demand Opportunity: India will need 78,000 megawatts of new coal-fueled generation by 2012, meaning an additional 265 million tons of coal use in that country.

Conference Call Quotes:

* BTU's CEO Gregory Boyce on WW Coal Supply + Demand Fundamentals: "With the recent oil and gas prices near record levels for even the long-dated products, the world is returning to coal in growing amounts. That is why coal remains the fastest growing fuel in the world for each of the past five years. Within the global coal markets, the dynamics we first told you about years ago are only growing stronger. Global coal demand is growing in BOTH the THERMAL and METALLURGICAL front. Some of the largest coal producing nations either can't export more or are limiting exports to fuel internal growth. Global steel demand continues to grow at 6% per year, requiring ever more mettalurgical coal. A new coal fuel generation is being developed in scores of nations around the world; all of this leading to a 7% compound growth rate in seaborne coal demand. On the SUPPLY SIDE, major coal exporters are straining to keep up against the sustained demand growth. All aspects of the coal chain are under pressure and more nations than ever are seeing the valuable resource that their coal represents, forcing coal suppliers to keep greater amounts of coal at home. Combined, these effects are driving continued record prices and we believe global supply and demand is even tighter than many think, due to severe stockpile shortfalls around the world in places such as China, India, Indonesia, and South Africa...What happens in the global market... looks back to what's happening in the U.S. So, REGARDLESS of some certain economic factors that are happening in the U.S. that would lead us to come to one conclusion but that's NOT really what's driving the overall commodity market and the coal market. At the end of the day it's a GLOBAL factor, so as the prices around the world continue to increase and stay strong because of the shortage of supply and the high demand..."

* BTU CEO on the BTU's Opportunities + Future: "The global market fundamentals create significant opportunities for Peabody through four areas; Peabody's unmatched Global Platform, our ability to Reprice Legacy Contracts, our Organic Growth Potential and Peabody's strong Cash Flow profile...Five years ago, just 1% of our earnings came from outside the U.S. And now this is more than half...the benefits to our earnings as we reprice former contracts in the new market environment will be considerable. These two are just starting to flow through our 2008 results. Our EBITDA margin in the second quarter was 29% and we expect it to continue to increase...These commitments include plans for a very strong second half and even higher earnings than the first...In summary, we are seeing record coal prices, sustained growth in coal demand and an improving competitive advantage for coal over other fuels. More importantly, Peabody has expanding margins from a growing platform and improved pricing. We have the ability to REPRICE the MAJORITY of our production over the next several years at levels SIGNIFICANTLY higher than current marks. Simply put, it is a great time to be the world's largest coal company."

* BTU President Richard Navarre on Domestic U.S. Coal Production: "In the U.S. markets, we are seeing export demand is creating great opportunities in the Illinois Basin, the Powder River Basin and Colorado that we expect will carry through 2008 and beyond. We believe net exports will have grown more than four-fold in just two years. And (total U.S. coal) exports may well exceed a 100 million tons in 2009. We have also seen U.S. stockpiles coming down very sharply, down 17% over prior-year levels. And we believe all regions are below or near their targeted level, with plenty of summer burn left...We have more than 90 million tons of coal that's unpriced for 2010 out of both PRB and the Illinois Basin just from our existing operations. We told you earlier in previous calls that the competition that was being created worldwide by European utilities seeking U.S. coal would lead to significant moves in the U.S. markets that would ultimately flow back to the Powder River Basin. And that is just what has occurred. Published Powder River Basin prices for 2010 delivery have increased more than 80%, since the beginning of the year and are now in excess of $20 per ton. In the Illinois Basin, we've seen the same issue where prices have more than doubled during that same period of time. And I'll remind you that Peabody has the largest Illinois Basin position with more than 30 million tons in sales. We believe that the strength in the global coal market is very long term in nature, and expect this will result in very attractive coal prices for many years."

* BTU CEO on International Growth Opportunities: "And then from the international side, we've got a number of opportunities in Australia that now that we've got the platform up and running and performing well, we're looking at what the opportunities that we have to grow organically in Australia similar to what we've done everywhere, every other platform that we have. And we do have some opportunities that we're starting to put some good engineering average into. That takes this into the real greenfield, new area developments. Mongolia is one of those. Clearly our initiatives in China will be another one of those and then you mentioned Mozambique. In Mongolia and Mozambique, the real focus will be mettalurgical coal developments and China would be both thermal coal and when I say thermal coal in China that includes coal for their chemical feedstock business as well as coal for power generation. Mozambique in particular, we've had a number of times that we've spent over in Mozambique and we continue to look at the structure of the industry what's happening in terms of the infrastructure development in Mozambique, both in terms of rail and port developments and then looking at the types of lease holdings that are available in Mozambique and/or development partners.

* BTU CEO on Supplying Growing South America Coal Demand: "When you are talking about South America really in terms of major producing regions or a potential to be major producing regions, you're are talking about Venezuela and Colombia. You know, we're in Venezuela. I mean everybody is well aware of the turmoil that Venezuela has kind of been going through. We see it as very unlikely that there's going to be major investment in new mine developments in the near term in Venezuela. So they're going to be where they're at and maybe struggle to maintain that level of production.When you look at Colombia, lot of discussions and a lot of talk about how Colombia is going to increase production to a next level. But every time you turn around, they are being delayed. They still have labor issues. They have permitting issues. Suffice to say is our view is they will increase over time. Probably going to be bit slower than what some people think, and most of that is very good quality thermal coal probably going to be almost exclusively dedicated for the European market, now that South Africa continues to over time short that market. So at the end of the day if you look at WHERE are major sources of additional coal for the seaborne markets, in the near term, it's Illinois Basin coal and it's PRB coal as you continue to have Colorado, Illinois and Eastern coals exported out of the U.S. and the Powder River Basin back drilling for all of those coals.

* BTU CEO on Coal-to-Gas Technology: "Well coal-to-liquids, coal-to-gas, it's really a story of two different parts of the world. You got the U.S. as one part and you got the rest of the world as the other. Let's look at what's happening Outside of the U.S. Coal-to-liquids, coal to industrial feedstock gas, coal to natural gas is really taking off. You've got a significant amount of new construction and plants coming online in China. You've got coal-to-liquids plant now operational in Australia. You've got... and on the drawing board a number of locations elsewhere. And then of course, you've got continued expansions of the coal-to-liquids platform in South Africa. So, then you get at the U.S. and just say where do we stand in the U.S? It's a combination here of both the ever-rising capital costs for these types of facilities still looking to find contractual commitments for off takes that go out longer than say a five-year period of time. You'd like to see something in the ten-plus years before you commit the capital. And then lastly, there is still the lack of a full regulatory program and permitting U.S. program for CO2 capture and storage, which most of the folks, particularly ourselves are looking at these types of facilities, are looking for those things to come into place at some point early on in the project life. But having said all of that, major expansions internationally, our view is the U.S. will catch up as soon as we get beyond the uncertainties of the election get into '09 and '10 and start to bring some certainty around the permitting and the legal environments around carbon storage.

* BTU Ceo on the U.S.'s Competitive Advantage - Coal Export CAPACITY: "The port capacity, obviously if you go to, lot of places you will see a name playing capacity, if you will of all of port facilities in United States. That number is somewhere between 165 and 175 depending upon who you talk to. We would tell you that the practical capacity in our view, after assessing the facilities and owning 37% of DTA and using facility, it is probably about a 125 million ton. This country has done that in the past. So and that's why U.S. has become one of the major swing supplier in this tight markets globally. Because we have the ONLY place in the world, where we have unconstrained port capacity and capabilities to move the product. So that's why we continue to see this having a lot of legs for some period of time, because as you look around the globe, (production) can go offline and down country by country out of the 12 to 13 major exporting countries, you will see everyone of them stuffed up with congestion, with probably the exception in United States. And the United States has the ability to move it, because they have the ability to BACKFILL it from somewhere else in the country. Otherwise, if we didn't have the PRB or the Illinois Basin to backfill, we will be doing what the other countries are doing, restricting exports.

* BTU CEO on International Producers Restricting Coal Exports: "I mean right now, China clearly has been at the top of the list. Their export license is going to be down from where people thought they were going to be this year. Vietnam has been restricting their exports particularly into the Chinese markets. Indonesia is now telling all of their domestic producers that they have got to supply their internal needs first, ahead of their ability to export, one of reasons why we have seen Indonesia basically flat year-over-year in terms of growth. South Africa is severely short of coal. I mean that's just came out with an estimate that they think they have got over the next five years or more. I guess it was 2017 where they need another 100 million tons of coal developed and they are 40-45 million tons short on their stockpiles, so where they are liken to be today. And Russia now is a country that in a major way is starting to restrict not only metallurgical coal but thermal coal, as they continue to build new generation, so that they can free up gas for exports on the gas. So that's kind of some of the major producing countries that have been traditional export countries over the last four, five years."

Full Disclosure: I own shares of BTU.