Crowning King Coal?

Coal is ugly: belching smokestacks, vast mines ripped out of the earth, big black barges. But for investors, coal may be beautiful.

The attraction of coal is that it is cheap and plentiful. Coal prices have been rising sharply this year, but it may still be seen as a bargain at a time when crude oil is touching $145 a barrel. The fast-growing economies of China and India are big consumers of coal for their energy needs and to make steel. And even some power plants in Europe have switched from oil to coal.

Yet worries that a slowing global economy will reduce demand sent shares of shares of coal producers and other mining companies sharply lower on stock markets around the world this week.

Today, several analysts said they saw the retreat as overdone and presenting a buying opportunity.

John Hill, an analyst with Citigroup, says coal has finally become a global market and is now reaping the rewards. "Mine shortfalls, transport constraints, thin stockpiles, and voracious BRIC-country demand suggest that this process has several years yet to run," he wrote. He raised his ratings on Peabody Energy and Arch Coal to "buy" from "hold."

And recommending mining stocks more broadly, Jeremy Gray, an analyst with Credit Suisse in London, said that "fundamentals remain very strong despite growing macro concerns."

One uncertainty is China, one of the biggest producers of coal, which turned from a net exporter of coal to a net importer last year. China will be shutting down coal-burning plants in order to clear its polluted air as much as possible before the Summer Olympics in August.

The question is how much will it ramp up after the games. Its economy may suffer from a post-games slump as host nations have in the past. And a return to smog-filled skies may not be a popular option.