According to the U.S. Energy Information Agency, U.S. coal exports rose 49% during the first quarter of 2011 from the same quarter a year ago, pushing exports to their highest quarterly levels since 1992. This growth has primarily been supported by a recent surge in demand for steam coal, which witnessed a 160% increase during the same time period, followed by a 21% increase in coking coal exports. Although steam coal appears to be the larger catalyst in export growth of coal, coking coal remains the primary coal export, accounting for 64% of all coal exports.
One factor behind this increased demand for US coal is the disruption in global coal supply caused by natural disasters such as typhoons and flooding in Australia and the earthquakes in Japan which both led to reduced coal production. As for the near-term future, these supply constraints are expected to remain intact further supporting increases in exports of US coal.
As for the future of demand for coal, the outlook remains promising. Coal is one of the cheapest and most effective ways to generate energy and there is plenty of it to go around. Demand is especially expected to remain insatiable in emerging Asia as the need to generate more electricity and fuel power plants continues to rise.
In a nutshell, coal is expected to witness positive upside in the near-term future as supply and demand imbalances prevail. Some ways to play coal include:
- Market Vectors Coal ETF (NYSE:KOL), which seeks to track the overall performance of a global universe of listed companies engaged in the coal industry. KOL allocates nearly 55.4% of its assets to US coal companies and includes Peabody Energy (NYSE:BTU), Joy Global (NASDAQ:JOYG) and Consol Energy (NYSE:CNX) in its top holdings.
- PowerShares Global Coal Portfolio (NYSE:PKOL), which seeks to track the overall performance of globally traded securities of the largest and most liquid companies involved in the exploration for, and mining of coal, as well as other related activities in the coal industry. PKOL allocates roughly 30.9% of its assets to US coal companies and includes Peabody Energy, Consol Energy and Alpha Natural Resources (NYSE:ANR) in its top holdings.
Written By Kevin Grewal From ETF Tutor Disclosure: No Positions
Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net, where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor’s degree from the University of California along with a MBA from the California State University, Fullerton. He is a contributing author on The Street – his articles can also be found published on various sites including Yahoo! Finance, The Globe and Mail , Daily Markets, MSN Money, Seeking Alpha, Fidelity Investments, Traders Library, and Minyanville.