Coal ETFs

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Average returns in this Category	3 months return	6 months return	12 months return	YTD return

Coal	20.07%	125.17%	-17.03%	97.65%

Ticker SPY	Name	3 months return	6 months return	12 months return	YTD return

PKOL	Global Coal Portfolio ETF	10.31%	100.67%		92.49%

KOL	Market Vectors Coal ETF	20.07%	125.17%	-17.03%	97.65%


	About Coal ETFs
Coal ETFs Overview and forecast Coal is one of the most sensitive commodities. Its price is a benchmark affecting many resources stocks, and it trades in huge quantities. The coal ETFs have a definite similarity to their commodity. Their prices parallel each other, and in recent times, they've lifted themselves off their lows sharply but erratically. In March 2009, the coal ETFs hit their lows for the second time since the 2008 crash began. By the end of June 2009, they were around double their price in March. This sudden sharp series of moves is as much a trademark of the resources market culture as it is of coal. Coal prices are highly sensitized to the Chinese and Japanese markets, and demand, or lack of it, is enough to move coal prices. The highly active prices are good news for traders, but not necessarily so. Coal is also perfectly capable of going down in price and staying there for quite a while. The long flatlines would drive any trader up the wall. The coal ETFs are in fact reasonably good traders, but if you have a look at the Rates of Change, (ROC) they're enough to cause seasickness. The ROCs for the second quarter of 2009 are a good example. The peaks are good, but the troughs are quite deep. Short term (6 months) Coal ETFs have performed well to get back to their healthier price levels, but it'd be tempting fate to assume that they won't continue to keep their ROCs looking hyperactive. Real price gains, in terms of the way these ETFs trade, often mean regains, rather than large gains. Finding the lows is the only way to avoid a hiatus waiting for a profit to show up. There probably is some credible upside in coal, in the short term, particularly since China is looking a bit less edgy about its economy. Even so, commodities are inclined to act like yo-yos at the best of times. Traders are advised to hedge thoughtfully, rather than expect miracles over this time frame. Medium term (2 years) A lot of assumptions have to be made to predict a medium term upside for coal, and several of those assumptions include a global recovery, and significant increase in demand. That's asking a lot of a convalescent global economy, which is still trying to figure out where the capital is going to be coming from to do the recovering. The medium term upside, to be plausible, has to consider a slow-ish, but continuing, overall rise in coal prices and demand over the time frame. This is much more likely than a sudden return to peak market conditions, which just aren't on the cards until at least the second year of the medium term. This is the way rises in the values of the coal ETFs will be sustainable. These ETFs have shown an almost obsessive conformity to the market indices, and nothing but actual growth is going to change that pattern. Traders might want to consider a long position, working from good bandwidth starting points. Long term (5 years) The long term picture of coal as a commodity is becoming more complex by the second. Technology and economics are drastically changing the view of coal's future. The long term, including the introduction of new coal technology, and a general technical advance in the commodity's terms of trade, looks good. The upside here is that a combination of new economic measures and improved technologies effectively uprate the commodity as a whole. Clean coal, by definition, is a value adding commodity. Coal, being carbon, is also likely to develop much more in its non-energy roles. The original Bucky Balls were derived from coal, and new carbon technology, naturally, is looking for cheap sources of carbon. Coal, one of the oldest Industrial Revolution commodities, could reinvent itself as the new miracle industrial commodity. That wouldn't do the coal industry any harm, and could well redesign it, as a much more advanced commodity market, producing to meet multiple forms of demand. In the five year period, it may be that coal goes from being the villain of pollution to the saint of the new green economics. For investors, the long term upside is based on improved economic conditions, with the wild card of the new technology and demands as an added bonus. This quite specifically does not mean the coal ETFs ROCs are likely to be any less sensitive, but the positives much outweigh the negatives, in this case. Qualifiers to projections It's an irritating fact that coal has been playing poor cousin to oil for the last century. Rather sadly for investors in coal, so has the coal industry, which hasn't done a lot to develop coal beyond its basal fuel status. The result is that at market rates, a barrel of oil will buy several tons of coal. That's not a great rate of return, but it is a good indication of the typical energy industry fixation on fuels rather than other, more remunerative, uses for these millions of tons of valuable carbon. So any hopes for upvaluing coal and turning it into the sort of super commodity it could be require an embracing of technology which the industry has historically been very slow to achieve. It's unlikely this level of insularity will survive for long in the face of the general move away from fossil fuels, but projections must be heavily qualified by that process.

Last Updated on: 2010-01-14 02:03:40

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