The VanEck Vectors Coal ETF (NYSEArca: KOL) is up nearly 21% year-to-date, but some market observers believe the lone exchange traded fund dedicated to coal stocks faces lingering challenges while others believe coal stocks offer more potential upside.
With U.S. demand for coal in question, producers may be forced to international markets, mainly emerging economies, such as China. Increased steel production could also help U.S. producers of metallurgical coal. Low natural gas prices have previously weighed on coal as U.S. utility providers have turned to cleaner natural gas to power homes and businesses.
“From 2002 to 2008, coal stocks, as measured by the Dow Jones U.S. Coal Index, enjoyed an epic rise, increasing roughly 20-fold. However, the old saying rang true, at least in this case, about the bigger are, the harder the fall. And from its peak near 750 in June 2008, the DJ Coal Index would proceed to lose some 85% of its value in the next 5 months alone,” according to ETF Daily News.
A centerpiece of Trump’s campaign was reaching out to coal miners, a strategy that helped Trump win nearly all the major coal-producing states with the exception of Illinois. Of course, any politician must make good on promises made to voters or risk being defeated in the next election. The 2020 presidential election is a long way off, but Trump needs to get coal miners back to work. Whether he can is another story.
“This past June, the Coal Index had dropped to 33 before rebounding back up towards 42 this month. This 42 level may precipitate another drop down the shaft for coal stocks, though. That’s because it represents the current vicinity of a Down trendline (on a log scale) stemming from the index peak in 2011 and connecting the top in 2014,” notes ETF Daily News.
Related: Caution on Coal: Surging Exports Doesn’t Herald Reversal of Fortunes
KOL was boosted in significant fashion last year on expectations that President Donald Trump would create more coal-related jobs, but investors should approach that thesis with caution.
“The Coal Index has already dropped a bit from the trendline touch earlier this month. The fear is that, should the index fail to break above the trendline, another trip down the shaft may be in store for coal stocks. Of course, should the index succeed in breaking above the trendline, it would open up considerable upside for coal stocks,” according to ETF Daily News.
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