Why Coal ETFs Are Leading the Energy Sector Charge | ETF Trends

Coal exchange traded funds (ETFs) are at the forefront of the energy sector’s four straight weeks of gains. The price of coal may continue to increase on greater demand as countries rev their economic engines.

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?]
  • 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.

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.