Coal: Dawn of the Black Gold Rush

by: World Market Pulse

Coal is a complex natural resource that is primarily used to fuel power or cement plants, two commodities that are expected to see increases in demand as global populations and per-capita income in developing nations increase. Increased demand for coal is already being seen in China, which accounts for nearly half of global coal demand, and is being used for power generation and metallurgical coal to produce steel. Now with an increase in demand in neighboring India, the two Asian neighbors can consume a lot of coal together, to fulfill their economic dreams of industrialization and growth.

Coal India IPO Success: India's largest coal producing company Coal India (CIL), which had launched the country's largest IPO, saw tremendous response from investors; backed by released money blocked in the IPO. CIL had received bids for $54 billion worth of equity shares as against issue size of $3.5 billion. The market cap of CIL stood at Rs 2.16 lakh crore, which brought the stock to 4th rank on market cap basis after Reliance Industries (NYSE:RS), ONGC and SBI. Coal India attracted bids worth at least $48.7 billion, exceeding the gross domestic product of neighboring Sri Lanka, as energy demand in an accelerating economy and a surging stock market helped draw record inflows.

Russian Markets: Brunswick Rail, Russia's largest private railcar leasing firm, has revealed that all of its stock is leased out and wagon rental rates for coal and other materials are up six-fold since January 2009 as a shortage roils the market. Brunswick Rail, founded in 2004, currently leases gondola wagons for coal and other raw materials for $30-$35 per day, compared with $5 per day in January 2009 and $20 per day a year ago.

Australia Coal: Coal is Australia's second biggest export earner after iron ore and rapid growth in China and India have kept global coal markets tight. The rising demand from Asian giants India and China have forced BHP Billiton (NYSE:BHP), Rio Tinto (RTP), and other mining companies to expand operations to keep up with the huge demand, in turn overstretching the capacity of Australia's Newcastle port by almost 10 million MT on an annual basis as it battles with bad weather and congestion. Meanwhile, Australia's thermal coal prices-- a benchmark for Asia-- rose over $1 PMT during the last week as continuing concern about wet weather in both Indonesia and Australia, as well as Chinese buying interest, boosted prices.

China Coal: According to Thomson Reuters report, with a chilly winter ahead and the Asian Games in November, utilities in China have kicked off stockpiling to meet expected higher power demand, pushing domestic prices to the highest since January. The prospect of more demand from the world's top coal consumer is helping boost Australian and other global coal values, but traders said that so far there haven't been many deals because of constrained supply, and as the Chinese balk at paying high prices.

Coal: Global Price Brief: Coal stockpiles at U.S. power plants rose just 0.6 percent this week but remained 20.5 percent smaller than a year ago, while Coal shipments from Australia's Newcastle port, the world's largest coal export terminal, rose 14 percent in the past week, despite a brief closure on Sunday due to protests at the port. Australia's thermal coal prices, a benchmark for Asia, closed at $94.89 per MT last week, slipping from $97.07 a week earlier. China's benchmark thermal coal prices at Qinhuangdao port stayed flat at about $114 PMT, but dropping stock levels were lifting expectations that buyers may start importing coal again.

Coal ETFs Options:

Although a recent drop in the natural gas prices has had some short term impact on the prices of coal exchange traded funds, an increased demand from Power hungry India-- the world's second largest populous nation-- is set to trigger a rally in the coal ETFs in the coming weeks. Some of the options for investing in Coal ETFs include:

1: Market Vectors Coal ETF (NYSEArca: KOL): The Index provides exposure to publicly traded companies worldwide that derive greater than 50% of their revenues from the coal industry. As such, the Fund is subject to the risks of investing in this sector.

KOL Top Ten Holdings

1. Peabody Energy Corporation (BTU): 7.81%
2. China Shenhua Energy Company Limited (01088): 7.74%
3. Alpha Natural Resources Inc (New) (ANR): 7.59%
4. China Coal Energy Co. Ltd. (01898): 7.50%
5. Consol Energy, Inc. (NYSE:CNX): 6.72%
6. Yanzhou Coal Mining Company Limited (01171): 5.73%
7. Joy Global, Inc. (JOYG): 4.51%
8. Bucyrus International, Inc. A (NASDAQ:BUCY): 4.43%
9. Arch Coal, Inc. (ACI): 4.29%
10. PT Bumi Resources TBK: 4.26%

Expense Ratio: 0.62%

2: PowerShares Global Coal Portfolio (NASDAQ: PKOL): The Index is designed to measure the overall performance of globally traded securities of the largest and most liquid companies involved in the exploration for, and mining of coal, as well as other related activities in the coal industry.

PKOL Top Ten Holdings

1. Peabody Energy Corporation (BTU): 8.78%
2. Cameco (NYSE:CCJ): 7.93%
3. China Shenhua Energy Company Limited (01088): 7.42%
4. Consol Energy, Inc. (CNX): 6.54%
5. Inner Mongolia Yitai Coal Company Limited (900948): 6.27%
6. Coal & Allied Industries Limited (NYSE:CNA): 4.32%
7. Alpha Natural Resources Inc (New) (ANR): 4.06%
8. Adaro Energy Tbk: 4.02%
9. PT Indo Tambangraya Megah: 4.01%
10. China Coal Energy Co. Ltd. (01898): 3.92%

Expense Ratio: 0.75%

Disclosure: No Positions