● The Credit Suisse global team published a report, Thermal Coal Market Dynamics: Winter Visionaries (dated 15 September 2010), reiterating our expectations of a seasonal recovery in thermal coal prices from September 2010 to November 2010 on restocking demand in China and India. Upside surprises in prices are possible if there are weather disruptions on the supply side.
● For 2011-12, we also expect the market to become tighter with higher demand from China and India. Further demand upside remains achievable from traditional markets in North Asia and Europe. Supply from Australia would be tight until 2013.
● We see this as the right time to get exposure to the coal sector in South East Asia. Coal stocks have underperformed the broader markets in Asia over the past three-six months.
● ITMG is our top pick in the sector due to its leverage to coal price, high dividend yield and low risk of short-term earnings. ADRO should also see an upside, being one of the most liquid names in the sector, and as its short-term earnings risks are priced in.
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