With the global demand for power on the decline, will coal and its related exchange traded funds (ETFs) still continue to perform in the way they have in recent months?
Coal inventories are currently at an astonishing 194 million tons, possibly an all-time high. This massive surplus is being caused by weak demand from power plants, deflation in competitive fuel natural gas, and a decrease in electricity generation for the first half of the year, states Tom Stundza of Purchasing.com. This has caused coal spot prices to decline by more than 50% from the prior year and has kept coal prices depressed.
In addition to weak demand, major coal-producing companies have announced cuts in production by nearly 75 million tons of coal, resulting in an overall production decrease of 12.6%.
The good news:
- Coal is still in high demand in China and India, which will help drive global demand
- The Waxman-Markey energy bill that the House is expected to vote on, has a cap-and-trade system that will not produce a carbon price high enough to spur deployment of clean-coal technology for a long time
- If clean-coal can become more cost-effective, the know-how can be exported abroad
- The bill guarantees that carbon capture and sequestration will play a huge role in America’s energy mix, reports The Washington Post; companies the sequester their emissions will get 10 years of compensation
- Market Vectors Coal ETF (KOL): up 49.8% year-to-date
- PowerShares Global Coal Portfolio (PKOL): up 45.8% year-to-date.
For more stories on coal, visit our coal category.
Kevin Grewal contributed to this article.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.