Fossil fuel producers, coal miners, in particular, are contending with a rough environment and outlook, which is weighing on the VanEck Vectors Coal ETF (NYSEArca: KOL), but some producers of metallurgical coal are trying to find ways to rebound.
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.
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. However, metallurgical coal, the coal used to make steel, still has some opportunities.
“While producing steel is still relatively carbon-intensive across the supply chain, producers of metallurgical coal are increasingly looking to highlight that the commodity may not be as replaceable as thermal coal, after a few years of big divestment announcements from banks, insurance companies, and asset managers,” according to S&P Global Market Intelligence.
Coal Call
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.
“Metallurgical coal forms a relatively small portion of the wider coal sector in terms of volume, even in the U.S., a significant global supplier,” notes S&P Global Market Intelligence. “However, it can often fetch much larger margins than the thermal coal sold to power plants. While many companies mine significant quantities of both types of coal, such as Peabody Energy Corp., several U.S. coal producers focus on one or the other.”
Metallurgical coal producers, at least within their industry, are taking something of an environmental lead, forcing their thermal rivals to wake up.
“Thermal coal producers are noticing the investment sentiment as well. Noting the company’s ESG efforts beyond carbon dioxide emissions, Consol Energy Inc. President and CEO Jimmy Brock recently said it is easier for metallurgical coal producers to pitch to ESG investors,” notes S&P.
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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.
