July 02, 2008 at 12:00 pm by Tom Lydon
One of the five largest coal producers in the United States may take a big hit if it has to pay damages in a pollution case, and it’s got the coal exchange traded fund (ETF) a little nervous.
Massey Energy (MEE) is accused of contaminating ground water with waste from a mine, report Margaret Cronin Fisk and Christopher Martin for Bloomberg. Insurers are refusing to cover the damages, and if the company loses its case, it will have to pay $125 million. That’s more than half of its estimated 2008 net income.
The news has Market Vectors Coal (KOL) trading sharply lower today, at times down by more than 7%. The fund has been one of the year’s strongest performers since its launch on Jan. 15. Since then, it’s up 61.1%, and Massey Energy is 5.6% of the fund’s holdings.
For the just-ended second quarter, the fund was among the top ETFs. Billy Fisher for TheStreet reports that the ETF is up 43.1% over the past 13 weeks, with soaring energy costs helping to fan the flames.
Coal, which is used in the production of everything from paint thinner to linoleum and fuel, is benefiting from increasing domestic and global demand, coupled with an industry that can barely keep up with it. Kris Maher for the Wall Street Journal reports that the shortage has been exacerbated by flooding in the Midwest, which has stranded barges and submerged railcars that were transporting coal.
(Graphic courtesy of the Wall Street Journal)
Rising oil prices mixing with soaring energy demand in China and India is causing coal demand to remain strong.
The stigma that surrounds coal, with pollution and global warming a reality, is the strongest risk factor for the industry, but so far, it doesn’t appear to be hurting any.
