Following a decline last year, a substantial increase in metallurgical coal contract prices is expected for the coming financial year because of strong global demand for coal. What’s more, steel is forecast to enter a phase of intense demand, further supporting coal demand.

Stuart Burns for Ag Metal Miner reports on the strong factors driving the growth of these commodities:

• World metallurgical coal demand is strong, driven mainly by expanding steel industries in China and India. Iron ore prices are expected to rise substantially as well. [Why China's Buying Spree is Moving Commodity Markets.]
• China remains the main driver of growth in world steel production and is expected to account for around 70% of the increase in world steel output this year.
• With the introduction of an iron ore export duty by the Indian government and a significant depreciation of the U.S. dollar over the past year, prices are poised up to skyrocket. [Coal Leads Energy Sector Charge.]
• Beijing’s shift to a net importer follows a clampdown on illegal and unsafe mining operations, but has enabled the Australian miners to keep the market tight as demand has dropped elsewhere.

Iron ore or coking coal prices are not expected to come down from their levels now. A fall in the raw materials sectors would only be attributed to a sudden drop in Asian demand and production.

For more stories about commodities, visit our commodity ETF category.

• Market Vectors Steel (NYSEArca: SLX)

• Market Vectors Coal (NYSEArca: KOL)
  

• PowerShares Global Coal (NASDAQ: PKOL)
  

Market Vectors Coal ETF (NYSEArca: KOL) is up 224.9% off the low. Oil prices topping off in the low $80 range helped boost coal plays since March 9. Coal prices had an assist in recent months as those in the colder climes crank up the heat and push demand higher, eating into what had been a surplus. And last year, China shifted from being a coal exporter to an importer, shifting the dynamics of pricing. [Why Coal is Leading the Energy Sector.]

Market Vectors Indonesia ETF (NYSEArca: IDX) is up 203% off the low. Indonesia has been one of the powerhouses of the recovery. Influential global asset manager Templeton Asset Management said that Indonesia could be ready to become a member of the BRIC. President Susilo Bambang Yudhoyono expects the country’s growth to average 6.6% over the next five years. Indonesia recently had its sovereign debt upgraded to one level below investment grade by Fitch Ratings firm. [Is Indonesia BRIC Material?]

Market Vectors Steel (NYSEArca: SLX) is up 180% off the low. A global recovery led by emerging markets, a pickup in global auto demand, tight mine supply growth and more demand for investment are seen as being the primary drivers of any gains in metals this year. Steel is a key component in all kinds of infrastructure and building projects, putting it in prime position to benefit in recoveries. [Metals and Mining Outlook.]

iShares MSCI Turkey Index (NYSEArca: TUR) is up 178% off the low. Turkey has seen a shift in the last year: its government bond rating was raised by Moody’s, Fitch and S&P. Turkish banks also managed to get through the crisis without seeking aid from the government. But trouble lurks: A coup in the country threatens to undo its hard-won growth. [Turkey's Coup Troubles ETF.]

Market Vectors Russia (NYSEArca: RSX) is up 176% off the low. While Russia is no less secretive than it was before the crisis, the economy has at least delivered the goods so far. It’s  estimated to grow around 3.5% this year. In January, industrial output in Russia jumped 7.9% year-over-year. The Federal Statistics Service reported that industrial output dropped by 10.8% last year. Car and locomotive manufacturing increased by three-fold year-over-year. But will Russia diversify far beyond oil and gas? Whether it does could determine its long-term prospects for health. [Russian Central Bank Lends a Helping Hand.]

SPDR S&P Metals & Mining (NYSEArca: XME) is up 160% since the low. XME is another ETF in a prime position to trend up as the economic recovery continues. Add in an increasing federal deficit coupled with a large decline in the U.S. dollar, and it may eventually translate into rapid inflation and higher metal prices. As an equities-based ETF, it tends to have less volatility than ETFs backed by physical metals or futures contracts. Added bonus: Mining companies can continue to do well if a commodity’s price falls back, but remains far above the cost of production. [Guide to Metals ETFs.]

SPDR KBW Insurance (NYSEArca: KIE) is up 164% off the low. Insurers were one of the most embattled sectors a year ago. The industry’s leader, AIG, is still finding ways to pay back a massive bailout by selling off certain units. A British company has signed on to buy AIG’s Asia life insurance business for $35.5 billion. The deal would mean the largest repayment yet of the whopping $180 billion the government fronted AIG. The Federal Reserve of New York would grab the first $16 billion from the sale. This week, AIG sold its foreign life insurance business to MetLife for $15.5 billion. [More on Insurance.]

SPDR KBW Bank (NYSEArca: KBE) is up 152% off the low. This one is proof that the most beaten-down sectors in a crisis tend to perform among the best in recoveries. The most recent dip in major bank stocks came after President Barack Obama announced increased bank regulations. Critics see this as an attack on the fundamental business model and Congressmen are in no real rush to push the changes. The most prominent bullish argument for banks is the yield curve slope, which allows banks to make profits on the widening rate spread. [Why Big Banks May Be Big Performers.]

For full disclosure, Tom Lydon’s clients own shares of XME.

Max Chen contributed to this article.

Examine a list of the top-performing funds in the last month, and you’ll find it lousy with base and industrial metals. [Metals and Mining ETF Outlook.]

Among the funds showing the most strength in recent weeks include:

• SPDR S&P Metals & Mining (NYSEArca: XME), up 23.1% in the last month

• Market Vectors Steel (NYSEArca: SLX), up 20.2%

• iPath DJ AIG Copper (NYSEArca: JJC), up 18.8%

• Market Vectors Coal (NYSEArca: KOL), up 18.4%

Even iShares MSCI Australia (NYSEArca: EWA), a proxy for basic materials if there ever was one, has gone gangbusters in the last month, shooting up 15%.

What gives?

• Some risk appetite is returning. Greece still has no clear resolution to its crisis, but assurances that a deal is close has lured more investors to come out and play. [9 ETFs for Dollar Bears and Bulls.]
• Emerging markets, as usual. China, especially, has led the drive to consume copious amounts of copper and steel. But don’t forget other emerging markets. India, Brazil, South Africa, Egypt and others are in various stages of amassing raw materials to support their growth efforts. [China's Buying Spree.]
• Supply and demand. Mother nature has crimped Chile’s efforts at mining and producing copper. While the country’s miners are mostly back and running, aftershocks could threaten progress. China is rabidly consuming coal and iron ore, but they’re two of the commodities in shortest supply. [The Outlook for Coal and Steel.]

For full disclosure, Tom Lydon’s clients own shares of EWA and XME.

Among the forces driving coal right now include:

• Oil prices topping off in the low $80 range also helped boost coal plays. This year, Merrill Lynch projects a 20% recovery in thermal coal prices, the type used to generate electricity, to around $86. Scotiabank estimates that the price of coking coal, used by steel makers, may recover 31% to $16. [Another Great Year for Coal?]

• SinoCoking Coal and Coke Chemic (NASDAQ: SCOK), Patriot Coal Corporation (NYSE: PCX) and Puda Coal Inc. (AMEX: PUDA) continued to perform for the fourth straight week, gaining more than 4%, reports Alan R. Elliot for Investor’s Business Daily. SinoCoking and Puda are coal producers based in China.

• You may have heard of a snowstorm back East; millions are without power or are just simply freezing. It is, after all, the coldest winter since 2000. Those in the colder climes can’t be blamed for cranking up the heat and pushing coal demand higher, eating into what had been a surplus.

• Last year, China shifted from being a coal exporter to an importer, shifting the dynamics of pricing. The United States is the world’s second-largest consumer of coal.

China’s power producers requested the government to put a price ceiling on power coal to balance the profitability of coal and producing power, according to iStockAnalyst. Coal experts hope China will obviate another wave of steep losses in the power industry with the launch of the power coal price linkage mechanism. [China's Buying Spree: A Boon for Commodity ETFs.]

For more information on coal, visit our coal category.

• Market Vectors Coal ETF (NYSEArca: KOL)

• PowerShares Global Coal Portfolio (NASDAQ: PKOL)

Max Chen contributed to this article.

China Investment Corp., the country’s sovereign wealth fund, purchased 2 million shares worth $78.6 million, or 3.48% of total shares, of United States Oil (NYSEArca: USO), and acquired 1.45 million shares worth $155.6 million, or 0.4% of total shares, of SPDR Gold Shares (NYSEArca: GLD), report Christian Schmollinger and Kyoungwha Kim for BusinessWeek. China is now the fourth-largest holder of USO. China bought a range of ETFs, covering everything from Japan to global materials funds, in an apparent bet on the global recovery.

Timothy Condon, chief Asian economist with ING Groep NV, says that China is hedging against the impact that their purchases of raw materials have on commodity prices. In total, CIC’s filing accounts for $9.6 billion of U.S.-listed assets; ETFs make up 25% of that, says John Spence at MarketWatch.

After years of incurring trade surpluses, China is standing on huge reserves of cash that could be used to amass more raw materials, according to SteelOrbis. As it stands, the East is purchasing materials from United States and Japanese sources. With higher demand, prices for the materials would inevitably go up. However, European sources are not a large provider to the East, and this may pose a problem to European scrap producers who are over-producing and unable to capture a market for their goods. [China's Quest for Coal and Steel.]

• Market Vectors Steel (NYSEArca: SLX)
• Market Vectors Coal (NYSEArca: KOL)
• PowerShares Global Coal (NYSEArca: PKOL)

According to Destatis, German exports plummeted $1.121 trillion last year while China’s exports totaled $1.202 trillion, reports Geoffrey T. Smith for The Wall Street Journal. Germany has held onto the title of the world’s No. 1 exporter, but China is quickly catching up as a result of the collapse in business confidence and investment during the financial crisis.  [Why China may see more growth.]

For more information on China, visit our China category.

• Shares FTSE/Xinhua China 25 (NYSEArca: FXI)

• SPDR S&P China (NYSEArca: GXC)

• Claymore/AlphaShares China All-Cap (NYSEArca: YAO)

• Claymore/AlphaShares Small Cap (NYSEArca: HAO)

• PowerShares USX Golden Dragon Halter (NYSEArca: PGJ)

Max Chen contributed to this article.

The price of thermal coal recently topped the psychological $100 barrier for the first time in more than a year, as heavy snow and cold weather settle on China, reports Tony Daltorio for Investment U. The storm threw a wrench in mining activity and caused panic buying and shortages. [Why coal may have a good 2010 performance.]

China’s shift from coal exporter to importer quietly began months ago as the country cracked down on illegal mining activity, meaning hundreds of mines were closed. As a result, China had to start buying coal from around the world, sending imports up near 500% in November 2009. China already has the world’s largest coal reserves. If they still need more, big plans must be in the works.

Robert Guy Matthews for The Wall Street Journal reports that China may also dominate the steel industry this year by increasing production by nearly 10%. The output probably won’t surpass demand, pushing prices higher for steel and its raw materials, which includes coal. [Steel and coal ETFs are set to rise in 2010.]

As a result, steelmakers are once again getting into gear. Rio Tinto (NYSE: RTP), China’s largest iron ore supplier, is firing up idled plants. Arcelor Mittal (NYSE: MT) is raising prices.

For more stories about coal, visit our coal category.

• Market Vectors Coal ETF (NYSEArca: KOL)

• PowerShares Global Coal Portfolio (NASDAQ: PKOL)

• Market Vectors Steel (NYSEArca: SLX)

Obama’s new clean energy budget dusts the old one, which had just $113 million allocated to renewable energy initiatives, reports Laura Isensee for Reuters. Although the money has increased, criticism remains.

J.P. Morgan analyst Christopher Blansett said that measures in the budget, such as $500 million in credit subsidies for energy efficiency and renewable energy projects, do not account for much in the “big picture perspective.” [Will it be enough to rally green energy jobs?]

Nevertheless, indexes reacted positively to the allotted cash. The WilderHill Clean Energy Index, which includes solar power companies, battery maker A123 Systems and other clean energy companies, closed up nearly 3% on Monday. [Other ways to play energy with ETFs.]

For more stories about alternative energy, visit our alternative energy category.

Kevin Grandia at Energy Boom Policy has a breakdown of the areas earmarked for money in the budget:

• Smart Grid: $144 million for research, development and demonstration activities to modernize the grid. This includes smart-grid technologies that will spur the transition to a smarter, more efficient, secure and reliable electric system. Vanguard Utilities (NYSEArca: VPU).



• Clean Energy: $500 million in credit subsidy to support $3 billion to $5 billion in loan guarantees for innovative energy efficiency and renewable energy projects. PowerShares WilderHill Clean Energy (NYSEArca: PBW).

• Biofuels: About $220 million has been allocated for biofuels and biomass research and development. PowerShares DB Agriculture (NYSEArca: DBA); holds soybean, corn and wheat futures.



• Coal: $545 million for advanced coal climate change technologies to focus resources to develop carbon capture technologies with broad applications to advanced coal power systems, existing power plants and industrial sources. Market Vectors Coal (NYSEArca: KOL).



• Nuclear Programs: $793 million for clean energy activities and civilian nuclear energy programs, including research and development and infrastructure programs. The money also covers a new research program to address technology needs for the production of nuclear energy. Market Vectors Nuclear Energy (NYSEArca: NLR)
  

Among the activity in the industry right now includes:

• Coal Miner Consol Energy (NYSE: CNX) has budgeted $500 million for coal operations this year and $100 million for additional activities, reports Kishori Krishnan for Coal Investing News. Consol Energy has 12 coal mines in six states and has around 4.5 billion tons in coal reserves.

• Global miner BHP Billiton (NYSE: BHP) has bid on Australian state of Queensland’s coal freight business.

• Vancouver-based Tech Resources paid $14-billion to take over Foding Canadian Coal Trust, which will pass along ownership of the massive metallurgical coal resource in BC’s Elk Valley. [Coal and steel ETFs in 2010.]

• Leighton Holdings Ltd. was awarded a 12-month contract extension at Tarong Energy’s Meandu coal mine in Queensland state that is worth around $140 million. Queensland-based Macarthur Coal could soon become Australia’s leading independent coal producer if it succeeds in purchasing Australian Gloucester Coal, which would give Macarthur Coal a market capitalization of $3.4 billion. [2009 a banner year for commodity ETFs.]

• Chief executive Michael Roche of Queensland Resources Council says coal export records are likely to set new highs this year. [Last year's top ETFs.]

The colder weather is helping in pushing coal prices higher, and some analysts believe the rising price will lead to more merger and acquisition activities, writes Wang Xinyuan for Alibaba. Coal inventories in China are diminishing on the increased power demand and coal consumption. Power companies are loath to lock in year-long coal contracts because of volatility in coal prices, and they are now considering acquiring coal suppliers instead for their energy sources. [Coal at a crossroads.]

For more information on coal, visit our coal category.

• Market Vectors Coal ETF (NYSEArca: KOL): up 17.7% in the last month

• PowerShares Global Coal Portfolio (NASDAQ: PKOL): up 13.4% in the last month

Max Chen contributed to this article.

It should be noted that the funds listed are some of the top long-only ETFs, since one can’t really judge leveraged funds by their long-term performance.

Coal. A poor economy, very low natural gas prices and lower export demand have all contributed to the diminished total demand for coal. [Coal at a crossroads.] Nevertheless, coal equities have done quite well for the year, with coal companies doubling or tripling off spring lows. The industry is currently trying to salvage revenue by drastically cutting production and an optimistic forecast puts the resolution of the glut by mid-2010. [More on coal.]

• Market Vectors Coal (NYSEArca: KOL): up 142.6% year-to-date

• PowerShares Global Coal (NYSEArca: PKOL): up 133.6% year-to-date

Russia. Russia has been making gains off the rise in oil prices. Direct investment is up and the economy saw decent growth in the fourth quarter. [Why Russian may extend gains into 2010.] The S&P Ratings firm might even upgrade Russia’s sovereign debt rating if the government demonstrates a greater commitment to economic reforms that could stimulate investment inflows. [More on Russia.]

• Market Vectors Russia (NYSEArca: RSX): up 138.6% year-to-date

Copper. Copper prices rallied to a 14-month high, thanks to a weakening dollar and economic expansion in both emerging and developed markets. [Will copper ETN be a hit?] The price of copper is on pace to have its biggest annual gain since 1978. However, some worry that the supply has outstripped demand for copper in the markets. [More on copper.]

• iPath Dow Jones AIG Copper TR Sub-Index ETN (NYSEArca: JJC): up 133.8% year-to-date

Brazil. Retail sales have been sustained by the population’s improved spending power fostered by economic stability and steady growth over the past six years. [How Brazilian leaders are stoking growth.] Brazil looks attractive when one considers aspects of the country such as a young population, blossoming middle class, stable democratic nation, small reliance on exports and natural resource reserves that could make Brazil self-sufficient. [More on Brazil.]

• Shares MSCI Brazil Index (NYSEArca: EWZ): up 113.3% year-to-date

Steel. Steel benefited from improved industrial demand in 2009. In 2010, as big industries continue to build up and auto sales climb, steel could be in even more demand than before. Analysts are predicting that steel prices could rise by as much as 30% next year. [Coal and steel ready for 2010.]

• Market Vectors Steel (NYSEArca: SLX): up 109.6% year-to-date

Latin America. Latin America’s growing economy has been overshadowed by that of Brazil. The region has plenty to offer besides. Latin America boasts resource-rich economies: Peru has copper, zinc and silver; Chile is the world’s largest producer of copper; and Colombia exports coal, oil and coffee. [Latin America ETF Opportunities.]

• SPDR S&P Emerging Latin America (NYSEArca: GML): up 104.1% year-to-date

Turkey. The World Bank Group stated that Turkey’s economy will be the first amongst Eastern European economies to emerge out of the global crisis. [Turkey's tenuous recovery.] Fitch Ratings upgraded Turkey’s sovereign debt to BB+, the highest speculative-grade rating. [Why Turkey's ETF is ahead.] The Ratings firm also noted that Turkey’s “credit fundamentals and debt tolerance are stronger than previously thought.” [More on Turkey.]

• iShares MSCI Turkey Invest Mkt Index (NYSEArca: TUR): up 99.8% year-to-date

Indonesia. Although it wasn’t around all year, this fund has been a standout. Indonesia boasts a young population and a growing workforce in the next decade. GDP per-capita growth in recent years has been strong. The country is also the world’s largest exporter of palm oil and should profit when the demand for the oil from India and China doubles as projected by 2014. [Why Indonesia ETF is an emerging market leader.]

• Market Vectors Indonesia ETF (NYSEArca: IDX): up 164.7% since inception

Max Chen contributed to this article.

This year’s markets were topped by emerging markets with the MSCI-EAFE up around 80.2% ending Nov. 30, writes Stacy Schultz for Financial Planning. John Gabriel, ETF analyst at Morningstar, attributes the high growth in emerging economies to a growing middle class, higher domestic demand and decoupling from Western countries. [More on emerging markets.]

• Shares MSCI Emerging Markets (NYSEArca: EEM): up 67.5% year-to-date

Commodities also saw a good spike on demand from a burgeoning middle class in emerging countries. Some high-performing commodities this year can be seen in gold and coal ETFs. [More on commodities.]

• SPDR Gold Shares (NYSEArca: GLD): up 24.2% year-to-date

• Market Vectors Coal ETF (NYSEArca: KOL): up 143.8% year-to-date

The top sector was technology. U.S. investors liked the balance sheets of giant technology corporations and the sector saw good performance and comparable inflows throughout the year. [More on the technology sector.]

• Technology Select SPDR (NYSEArca: XLK): up 51.5% year-to-date

The second best sector was consumer discretionary, a good indicator for investor confidence in an economic recovery. [More on retail.]

• Vanguard Consumer Discretionary (NYSEArca: VCR): up 48.4% year-to-date

Fixed-income ETFs benefited from the record inflows into securities. Investors wary of long-term Treasuries and interest rate risks choose to invest in short-term bonds and Treasury inflation-protected securities (TIPs). Dan Dolan, director of wealth management strategies at Select Sector SPDRs, warns that inflows into bond ETFs could come to a halt as yields dry up. Those investors may then turn to equities instead. [More on bond ETFs.]

• iShares Lehman 1-3 Year Treasury Bond Fund ETF (NYSEArca: SHY): up 0.4% year-to-date; yield is 2.3%

For full disclosure, Tom Lydon’s clients own shares of SHY, TIP, GLD, EEM and XLK.

Max Chen contributed to this article.