Coal exchange traded funds (ETFs) are riding a fast-moving train these days. In the last six months alone, these funds have gained more than 40%. What’s driving the market?
- The weather. You may have noticed that a large swath of the country was blanketed in snow over the weekend and the heaters were fired up in kind.
- Demand. U.S. power plant output rose nearly 10% in the week ending Dec. 9, says Bloomberg, and it could go even higher if cold weather persists. [5 Reasons to Think About Coal ETF.]
- Emerging markets. Developing countries want more of everything, it seems, and coal is no exception. China, for example, gets about 78% of its electricity from coal, says Ian Wyatt for Nasdaq.
- Increasing use. In the last several years, coal use has risen nearly 5%. That’s faster than any other source of fuel.
- Steel. All the building taking place in developing countries demands steel. Nearly 70% of global steel production relies directly on coal, says the World Coal Association. [4 Reasons Coal ETF Burns Bright.]
Coal doesn’t have the most pristine reputation, though. It’s commonly pointed to as one of the contributors to the global warming problem. If a truly clean coal can be created and successfully put to use, though, there may be no stopping the black stuff once it has a cleaner reputation. [5 ETFs for a Republican House.]
There are two ways to get exposure to coal through ETFs: Market Vectors Coal ETF (NYSEArca: KOL) and PowerShares Global Coal Portfolio (NASDAQ: PKOL), both of which track a basket of coal producers from around the world.
Tisha Guerrero 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.