ETF Trends
ETF Trends
  • Downtrodden ETFs from energy and materials sectors are getting in on the fun
  • KOL surges on news of China’s plans to layoff coal workers
  • Abundant supply and slowing demand, particularly from China, have drained KOL over the past several years

As stocks have rebounded off their February lows, some downtrodden exchange traded funds from the energy and materials sectors, two of last year’s worst-performing groups, are getting in on the fun. That includes the Market Vectors-Coal ETF (NYSEArca: KOL), which has been one of the most badly bruised industry funds in recent years.

While KOL is still down more than 44% over the past year, the ETF has surged 25.6% over the past month. Last week, KOL climbed 15.8% on news of China’s plans to layoff coal workers may also help support prices and prop up global coal producers.

KOL also includes global coal industry exposure, but the ETF has a heft 30.3% tilt toward China, along with 16.3% Australia, 15.2% U.S., 10.9% Canada, 8.1% Indonesia, 7.8% Thailand, 5.8% South Africa, 4.6% Philippines and 1.1% Poland.

Abundant supply and slowing demand, particularly from China, have drained KOL over the past several years as several of the ETF’s constituents have declared bankruptcy.

“Metallurgical coal prices have plunged due to a global oversupply and slowing demand out of China. The collapse has ravaged U.S. coal miners including Walter Energy Inc., Alpha Natural Resources Inc. and Arch Coal Inc. All three companies placed big bets on prices remaining high. And all three have filed for bankruptcy in the past year,” according to 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.

Moreover, China, the world’s largest consumer of coal, is beginning to diminish its reliance on coal in favor of alternative renewable energy sources as pollution becomes a major concern and clean energy becomes cheaper. According to Bloomberg analysts, about two-thirds of money spent on adding new electricity capacity worldwide will go to renewable between now and 2040.

“The benchmark contract for the coal may gain by a few dollars in the second quarter amid speculation that China is curtailing supply amid high costs, Mark Levin, a coal analyst at BB&T Capital Markets in Richmond, Virginia, said in a note to clients on Friday. An increase would pause a rout that began in 2011 when prices peaked at $330 a metric ton,” Bloomberg reported.

Market Vectors Coal ETF

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.