Down 33.47%, the VanEck Vectors Coal ETF (NYSEArca: KOL) continues struggling, but there may be some hope for the scuffling ETF.
KOL tracks the MVIS Global Coal Index. That index “is intended to track the overall performance of companies in the global coal industry which includes coal operation (production, mining, and cokeries), transportation of coal, production of coal mining equipment as well as from storage and trade,” according to VanEck.
The rise of environmental, social and governance (ESG) has investors constantly asking for funds that support the initiatives of environmentally-sound practices, but it could be taking a toll on coal. In a world where emissions regulations are getting more stringent, this also puts the coal industry in a bind.
According to Mining.com: “Global coal production is expected to grow only marginally in 2020, from 8.13 billion tonnes in 2019 to 8.17 billion tonnes in 2020, a growth of only 0.5% after three consecutive yearly increases, due to the disruptions caused by the coronavirus pandemic, says GlobalData.”
Contributing to the fallout in coal prices, a number of factors like a drop in power demand, an abundance of liquefied natural gas and China’s shift to become more self-sufficient in coal weighed on the market.
The market is suffering from unbalanced fundamentals. The International Energy Agency revealed that the world has consumed less coal in 2019 than in 2018 largely as coal-fired electricity generation is set to slip by over 250 terawatt-hours or over 2.5%, the biggest drop on record. The industry has also suffered from a large decline in the amount of thermal coal used by U.S. and European power stations where cheaper natural gas alternatives and rising regulations on fossil fuels have caused a shift in coal demand.
But believe it or not, coal output is expected to increase over the next several years.
“Over the next four years, production of thermal coal is expected to grow at a compound annual rate of 1.9% to reach 7.6 billion tonnes by 2023, due to increasing demand from India and China,” reports Mining.com.
In recent years, domestic utilities have been reducing the use of coal in favor of cheaper, cleaner-burning natural gas. Compounding woes for the U.S. coal industry are the declining costs associated with alternative energy sources, such as solar.
“China’s overall annual coal consumption is expected to decline by 0.5%, due to the lockdown of industrial areas with thermal coal consumption falling by around 0.3% in 2020,” reports Mining.com.
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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.