A supply glut is snuffing out an exchange traded fund that tracks the coal industry as Chinese demand cools.
The Market Vectors-Coal ETF (NYSEArca: KOL) has dipped 4.6% year-to-date, fell 18.3% over the past year and is trading near its lowest since March 2009.
Coal prices are falling as an overabundance of supply outstrips a dearth in demand. Last week, China revealed an unexpected 20% drop in imports due to lower volumes of coal, oil and other commodities, reports John W. Schoen for CNBC.
“(China) will be a major cause of depressed global import demand this year,” Wood MacKenzie analysts said.
The drop in demand for raw materials comes as China tries to rein in housing market boom and temper a potentially overheating economy. The slowdown in China’s building boom would pressure demand for coal used to make steel. The emerging market crafted a record 822 million tons of steel in 2014, or about half the global output, but production was only up 1% last year, the slowest annual pace in 33 years.
Additionally, Beijing is also to cut down pollution by diminishing its reliance on coal with high ash and sulfur content. Instead, the country is shifting into clean energy projects to help reduce its reliance on coal. For instance, China enacted a 32% expansion in its commitment to renewables and added a record $19.4 billion investment into offshore wind projects. [Alternative Energy ETFs Endure Oil, Tesla Woes]
Moreover, in the U.S. where a shale oil boom has pushed down energy prices, demand for coal is also falling as power companies switch over to cleaner and cheaper natural gas. Power companies in the lower 48 states utilized a record amount of natural gas to generate electricity last month.
“Low prices, particularly in the U.S. Northeast, have provided gas-fired plants with a significant advantage over coal despite warmer temperatures and lower demand for heating this winter,” Kyle Cooper, an analyst at IAF Advisors, told Reuters.