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Investors were left scratching their heads as the commodity-heavy S&P/TSX composite index took a bath on Wednesday afternoon. It's not gold's fault: Gold rose to $946.50 (U.S.) an ounce. It's not crude oil's fault: Oil rose to $142.80 a barrel. Indeed, the Reuters/Jefferies CRB commodities index rose 0.7 per cent on Wednesday afternoon, to a new high.
Instead, blame the downturn on coal. The price of coal fell 10 per cent in London, either on concerns that we're going to need less of it if the economic slowdown persists or because this is a “technical” correction caused by surging prices.
Either way, Fording Canadian Coal Trust plunged 13.3 per cent, to $84.58 (Canadian) – just one day after the coal producer hit a record high, with year-to-date gains of more than 150 per cent. The retreat also arrives just days after an analyst at CIBC World Markets raised his price target on the units to $100.
“This big selloff in the top performing names indicates that money managers and other institutional investors were most likely holding onto these names for window dressing purposes through the end of the quarter, only to take profits in them at the first chance they had,” said Bespoke Investment Group, on its blog, Think B.I.G.
For sure, Fording is not alone. Massey Energy Co. fell 10.9 per cent on Wednesday and James River Coal fell 11.6 per cent.
What's also problematic for Canada's benchmark index is that the decline in coal is also taking down the railroads, which depend on heavy coal traffic for a big chunk of their revenues. Canadian Pacific Railway Ltd. fell 6.5 per cent and Canadian National Railway Co. fell 5.1 per cent.
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