How to Invest in Coal
Coal is formed when layers of plant matter are tightly packed into rock deposits and over millions of years the intense pressure and temperature forms the rock that we know today. Coal is arguably the most important rock on earth, responsible for jump-starting the industrial age in the 1800’s and currently powering close to half of the world’s electricity. Coal is generally mined either through underground shafts or through open pits. Some of the world’s largest coal deposits are in the Eastern and Midwestern U.S. while parts of China and Russia also have a great deal of reserves as well.
Coal is primarily used for electricity generation as close to 40% of total energy production comes from the fuel source. In recent years, coal’s importance in fuel production has shifted away from developed markets and towards emerging nations such as China where the cheap fuel is becoming increasingly important. Beyond electricity production, coal has seen increased usage in ‘gasification’ programs in which coal is turned into a liquid fuel as well as in steel production where extremely hot temperatures are required to generate the most pure steel.
Investors looking to invest directly in coal have a number of options. There are (somewhat) liquid futures contracts available for Central Appalachian coal as well as similar contracts for European coal products. While investors cannot obtain physical exposure to coal, they can invest in stocks and ETFs of companies that mine the important rock allowing for equity exposure in the segment.
Ways to Invest in Coal
There are 3 ways to invest in Coal: ETFs, Futures, and Stocks. Click on the tabs below to learn more about each alternative.
What are Coal ETFs?
While there are no ETFs that offer exposure to physical coal that is extracted from the ground, there are multiple choices for those looking to bet on the coal industry. Coal ETFs include:
- Market Vectors Coal ETF (KOL)
- PowerShares Global Coal Portfolio (PKOL)
Both of these ETFs maintain a global focus, investing in both U.S. and international stocks. Components include coal mining and production companies, mining equipment manufacturers, power generation companies, and entities engaged in coal technology and coal transportation.
What are Coal Futures?
Coal futures are available on the NYMEX, and traded under the symbol QLD. Central Appalachian Coal Futures represent 1,550 tons of coal that meets certain quality specifications, including minimum requirements for Btu, ash, sulfur, moisture, and grindability. Contracts are listed for each month in the current year and the next four years.
The market for coal futures can be small, with even contracts in near months exhibiting limited liquidity.
How to Buy Coal Stocks
Investors have the ability to gain exposure to coal prices by purchasing stocks of companies whose operations focus on the extraction and production of the natural resource. There are several types of publicly owned companies engaged in operations related to coal, including mining companies, providers of technology and equipments, and firms that focus on the transport of the commodity. Among the options for investors seeking exposure to coal through stocks are:
- Consol Energy (CNX)
- China Shenua Energy (1088.HK)
- China Coal Energy Ltd. (1898.HK)
- Massey Energy (MEE)
For a complete list of coal companies, see either of these sources:
Coal in the News
Commodity Stock in Focus: Alliance Resource Partners (ARLP)
Checking in on the Worst Commodities of 2012
Major Commodity Earnings On Tap: EPB, KMI, SLB
Ukraine Ignores Russian Threats Against New EU Trade Deal
BHB Billiton Looks To Expand Coal Operations (BHP)
BP Energy Report: U.S. Production On The Rise, Global Demand Slows
The Uncertain Future For Coal
Commodity Growth: All Eyes On China
13 High-Yielding Commodities For 2013
A Deeper Look At Brazil's Commodity Industry