The coal industry-related exchange traded fund is trading near its financial crisis low and things could get worse.
The Market Vectors-Coal ETF (NYSEArca: KOL) has declined 21.1% over the past year and shows an average annual return of negative 17.3% over the past five years. KOL is now trading at its lowest since March 2009. [Lumps of Coal, but Investors Keep Faith in Coal ETF]
Fueling the exodus from coal, cheap natural gas from hydraulic fracturing techniques has helped utilities shift from coal to the cleaner and cheaper alternative, reports Tim Mullaney for CNBC.
“A lot of utilities have lost their appetite for coal,” Standard & Poor’s analyst Aneesh Prabhu said in the article. “If you don’t think gas is going to $6, you won’t make the investment. It’s throwing good money after bad.”
Moreover, in both the U.S. and Europe, regulators are cracking down on greenhouse gas emissions, which could make new coal-powered electricity plants economically unviable and even accelerate the closures of existing coal plants. China has even ramped up its alternative energy investments in a bid to cut heavy smog in its major cities.
“If you look at the long term, it’s not getting any better,” Prabhu added. “It’s a secular decline.”
In the U.S., Moody’s Investors Service believes that new Environmental Protection Agency rules could diminish U.S. coal demand 20% by 2020 – coal made up 39% of the market share for electricity last year after a quarter of coal-fired plants closed. Standard & Poor’s projects coal will make up 27% of America’s electricity by 2025.