Give the Market Vectors-Coal ETF (NYSEArca: KOL) some credit. Seriously. At least KOL was not one of the exchange traded funds hitting 52-week lows Thursday, though it is not far off from committing that ominous offense.
Still, that does not obfuscate the fact that KOL traded lower Thursday as the broader market surged, a familiar scenario for the downtrodden fund. Over the past five years, KOL has tumbled nearly 70% as the S&P 500 has surged almost 93% over the same period.
The coal industry is weakening as U.S. power plants switch to natural gas, environmental restrictions take hold and the world makes a stink eye at heavy greenhouse gas energy sources, reports Tom Randall for Bloomberg. The ongoing shale oil boom has pressured natural gas prices and made natgas a cheap alternative to coal. Additionally, new environmental regulations have forced coal-fired power plants to close, and many are being replaced with natural gas. [Dim Outlook for Coal ETFs]
Previous and looming bankruptcies and defaults are clouding KOL’s outlook.
“Patriot Coal filed for bankruptcy protection in May. Walter Energy announced it is filing for bankruptcy on July 15. Fitch Ratings reports that Walter’s unsecured bonds are trading at or below $0.10, which means that poor recoveries in bankruptcy are expected,” reports Amey Stone for Barron’s.