Coal Industry Outlook
The increasing demand for utility services, particularly for
electricity, is a primary driver for the demand of coal. Coal
remains a dominant source of power generation worldwide. In the
U.S. around 40% of the total power generation capacity is coal
As per the World Coal Association (WCA), proven global coal
reserves will last nearly 112 years at current production rates.
On the other hand, proven oil and gas reserves are projected to
last around 46 years and 54 years, respectively, at current
production levels. Asia is the biggest coal market and presently
accounts for 67% of the global coal consumption. (Read:
Oil ETFs Surge on Strong Data
Metallurgical coal or coking coal is used in steel production.
So, the improvement in steel industry fundamentals improves the
prospects of the premium variety of coal. The World Steel
Association projected about 3% year-over-year growth in global
steel usage in 2013 and 2014.
Despite the demand of coal for power generation and in other
industries, there is an increasing global concern towards the
emission of green house gases. President Obama's Climate plan,
which aims to lower carbon pollution in America, could impact the
future prospects of the coal companies. (Read:
Behind the surge in wind power ETF
The President's Climate plan calls for implementation of
carbon pollution standards for both existing and upcoming
coal-fired units that in a way could make coal-fired units more
expensive and less attractive for operators. The electricity
generators, in order to avoid the stringent regulation, could
decide to erect power plants using natural gas or alternate
sources, which will lower the demand for coal and impact the
future profitability of U.S. coal companies.
However, with prices of natural gas going up in the U.S. and
the expected surge in coal-fired units globally in the next few
years, the demand for coal may improve. Second quarter earnings
for the coal industry started on a positive note with Peabody
handsomely surpassing the market expectation, resulting in a
corresponding surge in coal ETF. (Read:
Coal ETF Surges on Peabody (BTU) Earnings
Market Vectors Coal ETF (KOL) in Focus
KOL tracks the Stowe Coal Index, providing exposure to
companies related to the coal industry. Even though this index
has a global focus, nearly 46% of its investments are directed
towards U.S. companies, followed by China with a 13% share.
The Coal Index comprises companies that generate at least 50%
of their total revenues from any form of coal related activities.
The activities range from production and mining, coal
transportation, production of coal mining equipment as well as
The ETF launched in Jan 2008 presently has an asset base of
$156.6 million. This fund holds 34 stocks and the top 10
companies hold a 58.73% share of total net assets.
The average daily volume is about 130,000 shares and the fund
has a dividend yield of 2.32%.
Among individual holdings, top stocks in the ETF include
CONSOL Energy Inc, China Shenhua Energy Company Limited, and Joy
Global Inc. comprising 8.31%, 7.99% and 6.93%, respectively, of
total net assets.
To Sum Up
Future prospects of the coal industry in the U.S. will be tied
to shipments besides domestic demand. China and India are going
to be the two major importers of coal. However, in the U.S. coal
continues to lose its ground to other fuel sources for power
Per the U.S. Energy Information Association, coal will
continue to be the largest source of electricity generation, but
its share in the pie, which was 51% in 2003, would decline to 35%
in 2040. Renewable energy sources and natural gas powered units
will be the main beneficiary of this lost ground. Even with its
decreasing usage, coal will remain as a major source of power
generation in the next few decades.
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MKT VEC-COAL (KOL): ETF Research Reports
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