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Coal producers are reporting higher profits as coal prices, along with coal related ETFs, surge higher on the growing demand for fuel from the emerging markets. But higher coal prices may force some countries to start digging for their own coal.

Multiple forces are converging to potentially create more price spikes in coal:

  • In Europe, German electricity prices are gaining as coal rose to its highest level since June 2009, reports Lars Paulsson for Bloomberg.
  • Demand for coal has been increasing due to the greater need for fuel from China and India.
  • In Canada, second-quarter earnings for TSX-listed Western Coal Corp was almost 18 times greater year-over-year at $40.8 million, Teck Resources announced increased revenue due to higher coal prices and Coalspur may soon begin “one of the largest export coal projects in North America,” writes Matthew Hill for Mining Weekly.
  • The International Energy Agency’s World Energy Outlook warned that China’s expansion of its own coal mining industry could change the global coal market in five years, stating that “Xinjiang’s contribution to global coal production could be double the contribution that Ghawar – the world’s largest oil field – currently makes to oil production.”
  • According to Murray Coleman for Barron’s, Market Vectors Coal ETF (NYSEArca: KOL) was up last Friday as some of its top holdings performed on potential talks of acquisitions. Peabody Energy (NYSE: BTU) may be looking into James River Coal Co. (NYSE: JRCC) while Alpha Nautral Resources (NYSE: ANR) may purchase rival Massey Energy (NYSE: MEE).

As long as China’s demand remains elevated and demand elsewhere doesn’t cool, coal could have a future that burns bright.

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Coal ETFs

Max Chen contributed to this article.

Disclosure: None

Source: Five Reasons to Consider the Market Vectors Coal ETF