EU Bans Russian Coal, Opens More Coal Plants

Can't make this stuff up! PDF: ENERGY AND MATERIALS WEEKLY 11 AUGUST 2022

Under the rules, EU countries will no longer be allowed to buy Russian coal, which will result in an €8bn loss per year for Russia, the EU Commission estimates. Coal imports from the US, Australia, and South Africa are expected to increase to help power the freshly reopened plants. The Netherlands has amended legislation to allow coal plants to run at full capacity until the end of 2023. France and Austria are both planning to reopen coal-fired power units before winter. Germany plans to restore 10 gigawatts of mothballed coal capacity to the grid to cushion a potential gas shortage, accounting for just under 5 percent of total German power production — a move environment and economy minister Robert Habeck described in June as "bitter but necessary." - EUobserver

For the Records: German Greens Vote For More Coal over Nuclear

Anyone who is serious about climate change would never choose coal over nuclear. Yet the German Green party voted for exactly this in July. The entire topic of climate change is a scam as evidenced by the behavior and political choices of its leading adherents.

WSJ: Germany’s Nuclear-Power Implosion

The West is gripped by a suicidal, depressed, self-loathing people who fall for any foreign criticism. The same pattern of decline in seen in many regimes. The U.S. shares parallels with the late Qing dynasty, complete with the drug abuse, lack of confidence, and rule by invaders. Upcoming will be the Boxer rebellions (expelling of foreigners; Muslims in Europe and who knows who in the USA), followed by the political volatility, low level to full blown civil war, then religious/cultural revival. Enjoy the decline!

Coal Runs to the Full Fib Extension

The fruits of green labor. Ther 1970s was inflationary, but you could buy stuff. This inflation is going to be more like a Soviet Union grocery store. You will be lucky to find what you need, no matter what price you're willing to pay. That's before considering any potential war with China that cuts off a massive slice of the U.S. supply chain.

Spruce Point's Latest

I'd only go a month out for options, so timing is critical. The way the market is behaving, it looks like the energy/commodities complex won't crack until QT starts. Alpha Metallurgical Resources, Inc.

Leftist Environmentalism

Central planning fails over and over and over...

When ideology trumps physical reality, the result is epic failure.

Green revolution, replace fossil fuels.

Result: close nuclear power plants that have no CO2 emissions, retarded economic policies cause soaring oil and gas prices such that coal returns as a major fuel source.

You can try to concoct some conspiracy theory, but unless the coal industry is a cabal of secret geniuses, Occam's Razor says the ruling class went full retard.

Inflation About to Get Hyper? Coal Stocks Reach Breakout Line

Coal stocks.

I'll add a comment about the dodos who forecast China passing on higher costs via exports. to the extent their is global inflation, then all costs are rising and nothing is being "passed on," what hits China hits everyone else at the same time. If their is a country-specific hit from rising coal prices, it will be expressed via yuan depreciation as Chinese exports lose competitiveness. Each country's energy mix and how energy costs affect its balance of trade will become important factors moving forward.

Update: I neglected to mention a possible catalyst for today's coal move. Indonesia banned coal exports.

Reuters: Indonesia miners seek solution as coal export ban rattles sector

Indonesian coal miners want a quick resolution to a government coal export ban that has caused fuel prices to rise and could disrupt the energy supplies of some of the world's biggest economies.

The world's leading exporter of thermal coal on Saturday banned the shipments because of concerns it could not meet its own power demand, prompting President Joko Widodo on Monday to threaten to revoke business permits for any miners who failed to meet domestic market requirements.

The wider risk is of a knock-on impact on economic linchpins China, India, Japan, and South Korea, which together received 73% of Indonesian coal exports in 2021, shiptracking data from Kpler showed.

Watch that ADXY.

Qinhuangdao Port Coal Price

NBS: 2021年11月份能源生产情况

NDRC Says No General Inflation Happening

iFeng: 发改委：物价水平将保持在合理区间 不会出现全面上涨的“通胀”情况

In recent times, due to the impact of heavy rainfall and low temperature and other unfavorable weather, vegetable prices in some regions have experienced periodic fluctuations; due to the transmission of prices of energy products such as coal and bulk raw materials, prices of some regions and some daily consumer goods have also appeared to be certain. The rate rose. However, compared with the general price increase in other major economies in the world, my country's price level is generally within a controllable range.

Relevant interviewed experts said that China’s supply of important livelihood commodities is sufficient. The prices of coal and other energy resources have fallen sharply recently, and the prices of some raw materials have also fallen significantly. They have the confidence, confidence, and ability to maintain the overall stable operation of domestic prices, and there will be no comprehensive price changes. There is absolutely no need to worry about the rising "inflation" situation, and compared with the intensified international inflation, China is the "ballast stone" and "stabilizer" of the global price level. Looking ahead, international inflationary pressure will continue for a while. Time, and China’s overall price level will remain within a reasonable range.

On November 7, Qinhuangdao Port had 5.39 million tons of coal, an increase of nearly 1.5 million tons from the end of September. As coal production continues to increase, Qinhuangdao port stock has steadily increased. As an important coal transit base and market weather vane, the continuous increase in coal storage provides strong support for ensuring downstream demand, and also reflects the obvious improvement in the coal supply and demand situation

CNA: China's daily coal output stabilises at 12 million tonnes, state planner says

The fall in coal prices has pushed down prices for steel, aluminium, pulp, PVC and coal chemical products, and pricing pressure on those raw materials has eased, Zhu, a deputy director of NDRC's Department of Prices, said in the report, which the commission reposted.

China PPI

Look at This: China Coal Inventory

Green Terrorists Take Out the Power Grid: Incompetence, Criminal Negligence or Worse?

Cantillon Consulting tweeted this image:

The climate is always changing. When the climate changes, winds shift permanently. Why would you build wind power unless you can accurately predict the future path of winds (which we cannot)? This is really simply stuff, the kind of anecdote that the general public can understand. Why then, did supposedly smart people invest heavily in an unreliable energy source?

More broadly, as with California wildfires and other foreseeable disasters, why did the people who believe in climate change (manmade or not) most strongly, fail to prepare? Central planning fails with the smartest people in charge because they lack critical information, but in this case the planners were morons. Aside from being corrupt and profiting from wind deals, what other motives were involved? Were they incompetent, criminally negligent, or was this energy source selected with the intent of destroying national economies? When the Green movement took off in the 1990s, people called the Greens "watermelons" because many were former communists who needed a new gig after the checks from the Soviet Union stopped coming in. Is the Green movement a Soviet operation that kept running even after the regime fell? Did at Fifth column of traitors intentioally bring down the world's energy grid as part of a larger war plan against freedom, markets and liberty? As social mood declines and the lights start going out, authoritarianism will accelerate because the obvious cause of all these problems is the ruling class who intentionally enacted extremely stupid and short-sighted energy policies over the past couple of decades. Or are they very smart evil people who are doing this all for a malevolent end? The answer will determine their level of punishment, but no matter the intent, these people have to be removed from power yesterday.

Frontrun ESG's Exit From Tech, They Can't Buy Energy or Mining

The ESG movement has helped push the technology sector to extremes because it eschews investments in sectors that power the economy. Energy is 3 percent of the S&P 500 Index, technology is north of 40 percent once you account for Amazon, Google, Facebook, Netflix, Tesla, Twitter and other tech companies that were moved out of the old tech sector. Assume we move into a stagflationary economy such that energy and commodities are vastly outperforming the market, and you're an ESG manager trapped in stocks headed for 80-percent inflation-adjusted losses. If you don't believe that number, consider that Amazon's stock price fell 95 percent in the doctom bust. Microsoft fell 70 percent into the 2008 low, with no consideration of inflation.

Assume tech in general loses 60 percent nominal, that takes a $100 portfolio to $40. Stagflation would involve double-digit inflation. The current CPI, if using 1980s calculation that Volcker was working from, would be 14 percent. I'm skeptical of these calculations to a point. If inflation takes off we probably will see the CPI "break" because the market will ignore it for a new measure or the CPI will capture actual inflation and head towards double digits in a stagflationary scenario. A decade of roughly 8 percent CPI would cut the value of the currency in half, which would take a nominal $40 portfolio down to $20 in purchasing power.

Let's say you're an ESG manager right now. Your portfolio is loaded to the gills in technology. You're not allowed to buy the stocks that will lead the market higher, and even if you wanted to buy them, a lot of them are probably far below your minimum market capitalization and liquidity requirements. Large managers with no ESG mandate can go into commodity futures, but not ESG. What do they buy? Solar is the first thing that came to my mind. First Solar (FSLR) as a P/E of about 20 right now. I assume stocks like this will see multiple expansion into 50s or even 100s in an energy bubble. Some ESG managers with looser standards might be able to wade into some agricultural stocks, like technology companies that conserve resources. I can't think of a large company that qualifies today, but if all the ESG managers are looking for something to own, maybe some of these firms get extremely high valuations.

Anyway, I'm genuinely curious about this, sparked by the reality of soaring coal stock prices. For example, would ESG be able to invest in clean coal? If they support clean coal, they are in effect supporting and probably expanding coal as an energy source. Maybe that is what is coming, a return to sanity with idiotic ideas like "net zero" emissions go into the ash heap. If not, the options for ESG are highly limited in an environment where funds with no restrictions will be generating high double-digit annual retuns. ESG managers will be losing jobs left and right if Joe Value Fund returns an annualized 40 percent for 10 years, while Mr. ESG is losing an annualized 10 percent. If ESG as a concept is here to stay, that means ESG managers will still be managing trillions upon trillions in wealth and it'll have to go somewhere profitable if it is to continue existing.

In the nearer term, the obvious play is to short technology. They have to sell technology for something else if there is a bear market. Then the question is: what will they buy? If they don't won't Particularly if you think ESG managers don't know what to buy, because they're trapped. They're the bag holders for this bear market.

Drilling into the Sectors

MSCI put out a report on the 20 largest ESG funds (PDF). In the report is this sector exposure list and top holdings list.

Some of the ESG funds have flexible mandates that let them invest in clean coal, natural gas over oil, or in say the oil drillers that use low-carbon methods. These funds will be fine because they can invest in energy and mining firms. Under stagflation, financials are a bad bet, they're out. That leaves telecom, healthcare, alternative energy and maybe utilities. Battery tech and electrificaiton will also be a destination.

What has me wondering though, is how large are their target asset markets versus their current terchnology holdings? There aren't several $1 trillion market cap battery stocks. The simple solve in this equation is a bear market. Trillions upon trillions in ESG funds are going to money heaven.

1789 Approaches

ZH: German Power Plant Halted After It Runs Out Of Coal

Last year we had power, this year no power? What changed in the past few years? Green energy policies and mass lockdowns to fight what is clearly a very bad flu. And the vaccines might fail, triggering more lockdowns that will guarantee you won't be able to buy energy at any price even if you could afford it.

Got acres of wooded property with a wood stove?

China Using Prices to Curb Electricity Demand

Caixin: Regional China Utilities Get Nod to Raise Prices in Hope of Easing Outages

Electric utilities in a handful of Chinese provinces are raising power prices after a nod from the nation’s top economic planner, which is grappling with the contribution of record-high coal prices and withering stockpiles to a worsening power crunch.

Coal-fired power plants in Ningxia, Shanghai, Shandong, Guangdong and parts of Inner Mongolia have increased their fixed rates charged to grid operators by 10%, the maximum allowed under national regulations, a Caixin analysis shows.

...The agency said on Monday it will start a new mechanism in October that will link the coal market to industrial power prices. Once prices for coal bought by power plants surpass 1,300 yuan ($201) per ton, for every 50 yuan increase, electricity sale prices will increase by 0.015 yuan per kilowatt-hour (kWh).

China's policy response is the right one. This is a good illustration of why I am both bearish on China, while remaining long-term bullisho their rise as a nation because they apply common sense solutions. Using common sense in the West will get you branded a racist, extremist, transphobic terorist.

I can't call it a wager yet because I don't have a trade on, but I'm watching the forex markets like a hawk for a sign of spillover. I am currently long calls on DXY, but that is not a China-specific trade.

Thanks China

This broke out yesterday, China fueling it today. These stocks have plenty of room to run in a bull market and you will have months and maybe years to front-run all the ESG yoyos.

China to Secure Energy At All Costs

Bloomberg: China Orders Top Energy Firms to Secure Supplies at All Cost

China’s central government officials ordered the country’s top state-owned energy companies -- from coal to electricity and oil -- to secure supplies for this winter at all costs, according to people familiar with the matter. The order came directly from Vice Premier Han Zheng, who supervises the nation’s energy sector and industrial production, and was delivered during an emergency meeting earlier this week with officials from Beijing’s state-owned assets regulator and economic planning agency, the people said, asking not to be named discussing a private matter. Blackouts won’t be tolerated, the people said.

The Federal Reserve along with all central bankers and all governments implementing idiotic lockdown policies had better hope inflation is transitory because if it is not, China may have just fired the first real shot in competitive currency devaluations.

What If China Can't Afford Imported Coal

What is the most likely explanation for why China is handicapping its economy after spending more than a decade bailing out various zombie industries. The first answer is the reform moment is actually here. All the attacks on corporations and wealthy CEOs over the past 18 months is part of a political consolidation ahead of letting the bottom drop out on the economy. Pop the credit bubble, ease the pain for the average Chinese citizen, but retain full political power by breaking the wealthy via recession and bankruptcies.

That doedsn't explain why they'd shut power on ordinary Chinese citizens though. We know the CCP doesn't care about climate change (nor should they, the best science argues against draconinan policies). The most likely explanation is central planning, which always fails in some new and spectacular way. The local officials have no idea how to apportion energy demand. They are now given electricity quotas, like the lending quotas in the prior decade, and once they hit the quota they shut the lights off. The power goes off at Mr. Zhang's apartment and Mr. Liu's factory.

What if that doesn't explain it though. What is the next most likely explanation? Given the existence of strict capital controls and recent total ban on cryptocurrency, plus everything we know about their reserve position and shortage of U.S. dollars, the current situation with Evergrade, the next most likely explanation is they can't afford it.

ZH: More Than Half Of China's Provinces Are Now 'Rationing' Electricity, Governors Demand More Coal Imports To Resolve Crisis

Reuters spoke with Han Jun, governor of the northeastern province of Jilin, who said new coal suppliers are needed from Russia, Mongolia, and Indonesia. He added the province would also need to acquire coal mining contracts in the neighboring region of Inner Mongolia to ensure adequate supply.

Jilin is one of the ten provinces that have been hit hard by the power crunch. The government has rationed power to energy-intensive heavy industries like steel, cement, and aluminum plants to solve the problem, but that has yet to work. Power plants are also facing a surge in thermal coal prices and are unwilling to pass on to consumers.

I have been discussing the potential for a major devaluation in the yuan for years. What I have repeated often is the following: the direction of the dollar is the key. Global macro forces are the key. If capital is flowing into China, if dollars are flowing into China, there is a near zero risk of currency devaluation in the short-term. The yuan will rally against the dollar. The same way that a highly indebted person or business has zero bankruptcy risk as long as their income exceeds their costs and interest payments, as long as their stock portfolio or whatever asset they have pledged against the debt is rising. The most bearish theory you can possibly imagine for the most incompetently run corporation will come to nothing so long as there is a positive trend. Enron, Lehman Brothers, Indy Mac were done in by the turn in the economy and markets. If the economy kept roaring along these past 20 years, Enron might be a $1 trillion company. Evergrande is going bankrupt now for a reason, one that we may learn more about in the coming months.

I spent countless hours studying charting as a way to filter down macro ideas. The chart of USDCNY looks like it has bottomed and will turn higher. That means pressure on China's reserves is rising. That means they are holding dollars more tightly. Evergrande is not repaying foreign borrowers. Power is being turned off as coal prices soar and the governors are asking for more coal imports...imports that cost foreign currency.

If I'm right, we're in for a steady stream of negative economic and financial shocks. If I'm wrong, we'll find out really soon because charts like USDCNY that are close to long-term support (or resistance in other cases) will move opposite to my expectation. I will adjust accordingly. I certainly could be wrong. Market turns are often clouded in uncertainty, a crisis is defined as "a crucial or decisive point or situation, especially a difficult or unstable situation involving an impending change. We often think of a crisis as negative, but really it is peak uncertainty. It can go either way. What drives the fear is that it could go the wrong way.

China's Energy Mess

China is cutting power to export industries again. Incompetence? Climate change goals? Rising coal and natural gas prices hitting currency reserves?

Climate Madness

China CPI Down 1pc in 3 Months on Falling Pork Prices, Coal Ban Drives PPI

China's CPI was higher in 2019 and into 2020 because pork prices were soaring, a result of the Asian Swine Flu killing China's swine herds. Supply was increased and now pork prices are tumbling, down 16.2 percent this year and down 11 percent in May alone. One could say the inflation in pork was transitory...in contrast the PPI is running at a 17.8 percent annualized rate.

Similarly though, if you dig into the PPI you will see coal is a major driver of price increases in China. Why are coal prices soaring?

SCMP: China weighs price caps on coal as supply shortage sends energy prices soaring

Chinese authorities may intervene to control surging energy costs by capping the price of thermal coal as a ban on imports from Australia and rising electricity demand during an unseasonably hot start to summer wreak havoc in the power market.

News.com.au:: Almost two dozen Chinese cities forced to ration electricity after Australian coal ban

Two dozen cities across China’s industrial heartland are rationing electricity.

Homes and businesses are having to cope with shutdowns and extreme heat.

And politically-motivated bans on Australian coal are to blame.

What is more responsible for higher prices: money printing or policy failures? As long as both continue, it doesn't matter, but it matters a great deal if governments wise up or, as in China, credit growth starts declining.