Coal industry exchange traded funds are getting a bad rep in the new clean energy paradigm. However, coal remains a significant part of global energy consumption.
Paul Forward, managing director at Stifel, points out that the fundamental case for coal remains intact, reports Clay Dillow for CNBC. In the U.S., coal powers almost half of the electric grid, and in some states, coal makes up 80% of grid energy.
Many utilities are loath to switch out coal as the energy source remains the cheapest way to deliver BTUs to power generators. Additionally, coal will remain cheap as the U.S. still posses some 28% of the world’s known deposits.
“I can’t tell you how many times I’ve read the ‘death of coal’ article,” Forward said int he article. “The funeral has been held many times. But here we sit, with coal at 40 percent of U.S. power. Coal’s defense is that it’s the immovable object that the unstoppable force of natural gas can’t push out of the energy picture. It’s going to take decades for gas to build up the infrastructure to do what coal does today.”
Naysayers, though, point to a number of factors that are contributing to coal’s funeral march.
For instance, the Obama administration has been openly conducting a so-called war on coal, increasing regulatory pressures to clean up the environment. Coal companies also took a hit after demand for metallurgical coal – coal used in production of metals like steel – faltered on slowing growth in China. Additionally, the rise of cheap natural gas has turned up as a suitable alternative energy source.
In May, coal stocks weakened after Stanford University became the first major university to divest from fossil fuel producers perceived as major polluters, selling off $18.7 billion of stocks in coal miners. More recently, the University of Dayton announced it will divest coal and fossil fuels from its $670 million investment pool to reflect the university’s commitment to environmental sustainability, according to UDayton.
Investors who still believe coal can make a comeback after the dip this year can take a look at the Market Vectors Coal ETF (NYSEArca: KOL). The ETF tracks global coal companies from the U.S. 40.2%, China 21.3%, Australia 10.8%, Thailand 7.1%, Indonesia 6.2%, Canada 4.6%, Poland 3.9%, South Africa 3.6% and Philippines 2.2%. KOL has declined 3.9% year-to-date. [Coal ETF’s Comeback Act]
Market Vectors Coal ETF
For more information on the coal industry, visit our coal category.
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.