A growing economy and improving manufacturing activity in Asia, notably China, have fueled demand for coal and bolstered the coal miner-related exchange traded fund.
The VanEck Vectors Coal ETF (NYSEArca: KOL) gained 2.4% Monday and has been breaking out to new 52-week highs. KOL is up 14.5% over the past month and increased 37.6% in the past year.
Supporting the gains in the coal industry, observers point to the strongest period of expansion in manufacturing activity and the global economy since the financial downturn, the Financial Times reports.
According to BMO Capital Markets, coal-fired power generation rose in most of Asia’s major economies last year, which bolstered demand. The fossil fuel still makes up 40% of energy consumption in the emerging markets.
“Thermal coal — once again it is powering Asian growth and urbanisation,” Glencore’s chief executive Ivan Glasenberg, told the Financial Times. “It’s another commodity where there’s been under-investment over the years.”
Furthermore, according to UBS Group AG, coal prices are expected to hold gains near the highest levels in five years as China’s drive to curb overcapacity sustains import demand, Steel Guru reports.
“We think China will continue to close capacity through 2018 and into 2019,” UBS Group AG analyst Lachlan Shaw told Steel Guru, adding that “it has already driven better demand for seaborne thermal coal. The Chinese have made good progress but they still have maybe a third, to a half to go in terms of the capacity closure targets.”
The overall global supply outlook also looks less promising. New thermal coal mines are not in the works and projects are growing more difficult to finance as banks and investors are concerned over environmental issues, further tightening the market and driving up prices.
“Supply is still very tight, probably not going to catch up with demand easily in January and February,” Shirley Zhang, principal analyst at Wood Mackenzie, told the Financial Times.
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