Coal ETFs Are at a Crossroads

Some say that coal demand has slumped in 2009, but tell that to the industry’s related ETFs. The two coal-focused funds have gained more than 100% year-to-date and are up nearly 200% since the March 9 low.

Could the industry’s run be winding down? A poor economy, very low natural gas prices and lower export demand have all contributed to the diminished total demand for coal, according to The Business Insider. Additionally, producers failed to match the market with production cuts and inventories are estimated to stand at a minimum of 50 million tons of excess inventory in the United States.

Nevertheless, coal equities have done quite well for the year, with coal companies doubling or tripling off spring lows. The industry is currently trying to salvage revenue by drastically cutting production and an optimistic forecast puts the resolution of the glut by mid-2010.

A heavier hand by federal regulators has improved miner safety, but the high costs attached to the regulations has put many small companies out of business in Central Appalachia. The Environmental Protection Agency is also scrutinizing mine permits, which will likely raise production costs and restrain supply in the future.

Meanwhile, coal ETFs could be adding a new holding if Rio Tinto’s (NYSE: RTP) IPO of its U.S. coal business, Cloud Peak (NYSE: CLD), goes through, Benzinga reports.

• Market Vectors Coal ETF (NYSEArca: KOL): which is up 133.1% year-to-date

• PowerShares Global Coal Portfolio (NASDAQ: PKOL): which is up 125.8% year-to-date.

Max Chen contributed to this article.

Comments

[very rare]

He talks as if the KOL etf is all USA coal. China and others are using a lot of coal and are in this etf. I know others don't like it, but I believe our long term energy needs can be met with our coal if we use it properly. Clean abundant coal is possible for us. I like KOL and want to buy it again soon.

2009 Nov 22 04:45 PM

[Mike4911]

Has anyone noticed that many of the top holdings in KOL are non-U.S.? This was not the case when I first started looking at KOL. It has caused me to rebalance some.

2009 Nov 23 11:17 AM

[tipalia]

indeed KOL is a play on coal but also on China and Australia .
China and coal are here to stay and will do very well when the global economy will be back . Chiona , Australia , South Korea , Indonesia ,
not a bad place to put your money at work right now . Am I wrong ? if
I am Iplaced the wrong bet with a good portion of my portfolio .

2009 Nov 23 11:37 AM

[Mike4911]

Tipalia... I agree. China in particular has had a heck of a run, so I reduced my exposure to it in other areas. KOL is a much safer way to stay involved.

Still goes to show you that you need to keep an eye on ETF holdings, though. Good luck to all.


On Nov 23 11:37 AM tipalia wrote:

> indeed KOL is a play on coal but also on China and Australia .<br/>
> China and coal are here to stay and will do very well when the global
> economy will be back . Chiona , Australia , South Korea , Indonesia
> ,
> not a bad place to put your money at work right now . Am I wrong
> ? if
> I am Iplaced the wrong bet with a good portion of my portfolio .

2009 Nov 23 01:51 PM