11 Month Analysis of Coal Price, KOL, USO and UNG

Includes: KOL, SPY, UNG, USO
by: Mike Havrilla

Click to enlarge

The accompanying chart includes an 11-month analysis of Central Appalachian Coal Futures (NYMEX: QL), Market Vectors Coal ETF (NYSEARCA:KOL), U.S. Oil Fund (NYSEARCA:USO), U.S. Natural Gas Fund (NYSEARCA:UNG), and S&P 500 (NYSEARCA:SPY).

The prices for coal futures from other areas of the world were excluded in the chart analysis to avoid congestion from too many data points and since the correlation is high (around 95%) to QL. An 11-month analysis was chosen since KOL began trading in mid-January of this year and the chart was constructed using the daily closing price for each element.

Despite the market turmoil and widespread decline in commodities, the price of Central Appalachian Coal managed to gain 21.7% in the past 11 months, compared to declines of 63.2% for KOL, 54.6% for USO, 43.5% for UNG, and 34.6% for SPY.

Also, the coal company ETF (KOL) was only 54% correlated to the price of Central Appalachian Coal (QL), but KOL was highly correlated (90%) to the overall market as measured by SPY. In contrast, the price of coal had a very low correlation of just 29% to the overall market.

Given the importance of coal in the global energy markets, the lack of a exchange-traded product for coal prices, and the low correlation of the coal company ETFs to coal prices; a CoalFund could be developed as a new investment vehicle to provide investors with exposure to the performance of near-month futures contracts for the global price of coal from the following four major coal producing and exporting regions in the world as specified below:

1.) United States: NYMEX Central Appalachian Coal Futures [QL], Western Rail Powder River Basin Coal Swap Futures [QP], Eastern Rail CSX Coal Swap Futures [QX]

2.) Europe: Intercontinental Exchange (NYSE:ICE) Futures Rotterdam [ATW]

3.) South Africa: ICE Futures Richards Bay [AFR]

4.) Asia (Newcastle, Australia): ICE Futures – globalCOAL NEWC Index, ASX Thermal FOB Newcastle