BlackRock global resources fund rates coal top pick
Devon Maylie Dow Jones Newswires December 29, 2009 7:31AM
GETTING a lump of coal this holiday season could be good thing, or so Dan Rice, who manages BlackRock's Global Energy & Resources Fund (SSGRX), believes.
Mr Rice invests in natural-resource stocks to play commodity prices, targeting sectors where the stocks are discounting a future price below what the fund forecasts.
Coal has the best outlook, he said.
"We look at the longer-term commodity price environment expectation," Mr Rice said. Using the Central Appalachian coal price, he forecasts coal prices at $US75 a tonne in the longer term, whereas he said stocks are discounting prices at $US57/tonne. Prices are currently around $US50/tonne.
Coal prices are down from the record high of $US140/tonne hit in May 2008, but even if they rise to $US75/tonne from current values, that still gives the fund's investment a lot of upside.
"The next couple of years, (coal) stocks will triple if our price forecast is correct," Mr Rice said. "It has the biggest upside in our portfolio."
He acknowledges there are some risks to his optimistic forecasts, namely climate change and efforts to curb air pollutants.
Regardless, he maintains that "coal prices will be relatively strong in the next couple of years," because demand from countries like China will remain robust, he said.
The fund estimates demand for coal will grow between 1.5 per cent and 2 per cent annually and supply will increase by 1 per cent, which could lead to a shortage condition by the end of next year, Mr Rice said.
CEY Price at posting:
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