Coal exchange traded funds are finding little support as a strong U.S. dollar weighs on coal-producing currencies, more utilities turn to cheaper natural gas and stockpiles build during the winter season.
The Market Vectors-Coal ETF (NYSEArca: KOL), which tracks the coal industry, has declined 9.4%. Additionally, the recently launched GreenHaven Coal Fund (NYSEArca: TONS), which is designed to offer investors with exposure to daily changes in the price of coal futures contracts, has dipped 2.8% since it began trading in February.
Financial services firm Sterne, Agee & Leach has lowered its average 2015 to 2016 international thermal-coal price forecast by $10 to $15 per ton in response to the mild weather, lower natural-gas prices and higher-than-expected coal stockpile build with utilities during the winter season.
The strong production and exports out of Indonesia and Australia have led to the current glut in thermal-coal markets, and the financial firm projects the oversupply to persist through 2015 with supply outpacing demand growth.
“We remain concerned about the extraordinary strength in the U.S. dollar relative to many coal-producing currencies, especially the Australian dollar, slowdown in fixed-capital investment in China, and sentiment and fundamentally driven pressure on U.S. natural-gas prices,” according to Sterne, Agee & Leach.
Looking at coal producers, Peabody Energy (NYSE: BTU) has cut its dividends to save $100 million in annual cash payments. The financial firm believes Peabody will see improved cash-flow profile by 2017 and beyond. BTU makes up 3.0% of KOL.