by Eugene Bukoveczky

While its difficult to find fault with the long-term bullish case for emerging market coal demand, in light of the huge need to generate electricity in those markets, there could be trouble ahead in the short and medium term.

There are growing signs of a slowdown in demand in China, the world's largest coal consumer. Just released data shows that, for the first six months of this year, China imported just 21.55 million tonnes of coal; that's down 20.4% from the same period last year. Based on calculations by Reuters, June's imports stood at 2.75 million tonnes, down 36% from 4.16 million tonnes in May, shifting China back to a net exporter of coal for the month.

The culprit here has to be slowing rate of economic growth in China prompted by higher oil prices and a slowdown in demand for Chinese goods. China's trade surplus plunged in June as exports rose by just 18.2% over the year-earlier period; a sharp drop from May's 28% growth rate.

As a result of the explosion in the price of oil, the cost of shipping a 40ft container from Shanghai to Rotterdam has increased three-fold according to a story by Ambrose Evans-Pritchard of the U.K.'s Telegraph.

In a recent interview with Reuters, Keith De Lacy, the chairman of MacArthur Coal, one of Australia's largest producers of coal, said that if one was contemplating selling an interest in a coal company, now was the time to do it.

Australian mining magnate Ken "King Coal" Talbot, who recently sold most of his 20% stake in MacArthur and resigned from the board. Reports are that he's now sailing somewhere in the Mediterranean without a cell phone.

Seabreeze Partners Management portfolio chief, Doug Kass, now has his sights on the energy sector, which, of course, has had a huge run. His list of shorts includes Arch Coal (ACI), Peabody Energy (BTU) and Foundation Coal (FCL), all three of which have posted double-digit gains in 2008. These coal companies are vulnerable, in Kass' opinion, because they have big exposure to the weakening U.S. market and face growing competition from wind and solar power. They trade around 10 times next year's profit estimates, says Kass, "but that assumes unsustainable coal prices and profit margins."