"In the next 12 months there will be an unprecedented amount of both domestic and cross-border mergers and acquisitions," Wilbur Ross, chairman of International Coal Group Inc. (ICO), told Bloomberg News. "U.S. reserves are undervalued relative to those in the rest of the world."

Ross, the billionaire investor who helped consolidate the U.S. coal and steel industries, considers this the start of a round of mergers that will prove Cleveland-Cliffs prescient in its Alpha bid.

The top eight U.S. coal producers, which are worth more than $50 billion, are possible takeover targets for a country desperate for resources. And compared with China, American coal companies are bargains.

China Shenhua Energy Co., Asia’s biggest coal company is valued at $15.52 for every ton of coal it holds, compared to $2.11 a ton for Peabody Energy Corp. (BTU), and $1.76 for International Coal, Bloomberg reported.

At a point when the U.S. economy is slowing under the weight of a growing financial crisis, and spiking food-and-energy prices, escalating growth in the developing economies around the world has ignited a bull market for coal that analysts believe could last for at least 10 years.

And that’s going to lead to a major shift in the ownership of coal-related assets.

Enter the Red Dragon: China’s Coal Crisis

China, home to 1.3 billion people and the world’s fastest-growing economy, counts upon coal for 80% of its energy needs. Indeed, it’s the world’s largest coal producer, as well as its largest consumer. Coal demand in China jumped nearly 9% last year - meaning the Eastern power now accounts for a full quarter of the world’s annual coal consumption. So it’s no surprise at all that the growing global discrepancy between supply and demand is most acute in China.

Vic Svec, a senior executive at Peabody Energy, the world’s largest private-sector coal producer, referred to China’s ability to influence the price of commodities as a "butterfly effect."  In other words, "demand from Beijing can ripple back to Queensland, Australia, or Gillette, Wyoming," Svec told The Wall Street Journal.

Svec’s right. Five years ago, China exported 83 million metric tons more coal than it imported. But last year, the nation’s surplus dropped to a meager 2 million metric tons. That means more than 80 million metric tons of coal (about 12% of the internationally traded market)has been taken out of global circulation.

That’s a big reason why the highly coveted low-sulfur coal from the Powder River Basin in Wyoming and Montana has climbed from less than $10 a ton last year, to nearly $15 a ton - a price gain of 50%.