Over the past week numerous analysts have raised their outlook on the U.S. coal sector as global demand for the commodity continues to rise amidst disruptions in global supply.
According to the U.S. Energy Information Agency, U.S. coal exports rose 49% during the first quarter of 2011 from the same quarter a year ago, pushing exports to their highest quarterly levels since 1992. This growth has primarily been supported by a recent surge in demand for steam coal, which witnessed a 160% increase during the same time period, followed by a 21% increase in coking coal exports. Although steam coal appears to be the larger catalyst in export growth of coal, coking coal remains the primary coal export, accounting for 64% of all coal exports.
One factor behind this increased demand for U.S. coal is the disruption in global coal supply caused by natural disasters such as typhoons and flooding in Australia and the earthquakes in Japan which both led to reduced coal production. As for the near-term future, these supply constraints are expected to remain intact further supporting increases in exports of U.S. coal.
As for the future of demand for coal, the outlook remains promising. Coal is one of the cheapest and most effective ways to generate energy and there is plenty of it to go around. Demand is especially expected to remain insatiable in emerging Asia as the need to generate more electricity and fuel power plants continues to rise.
In a nutshell, coal is expected to witness positive upside in the near-term future as supply and demand imbalances prevail. Some ways to play coal include:
- Market Vectors Coal ETF (KOL), which seeks to track the overall performance of a global universe of listed companies engaged in the coal industry. KOL allocates nearly 55.4% of its assets to US coal companies and includes Peabody Energy (BTU), Joy Global (JOYG) and Consol Energy (CNX) in its top holdings.
- PowerShares Global Coal Portfolio (PKOL), which seeks to track 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 allocates roughly 30.9% of its assets to US coal companies and includes Peabody Energy, Consol Energy and Alpha Natural Resources (ANR) in its top holdings.
Disclosure: No Positions