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Investor's Business Daily
ETF Lets Investors Bet On Coal Demand
Monday January 14, 6:19 pm ET
Joanne Von Alroth
Surging oil prices have everyone looking at alternative energy sources. Some, though, are betting on an old-fashioned source -- old King Coal.
On Monday, Van Eck launched Market Vectors-Coal (NYSEArca:KOL - News), the first exchange traded fund that follows the global coal industry. It will track the performance of the Stowe Coal Index, which includes 60 coal production and transportation companies from 12 countries. All companies in the index need at least 50% of revenue from coal-related activities.
The index returned 103.33% over one year and 43.81% over three years. Total market capitalization was $280.6 billion as of Dec. 31, 2007.
The fund will be rebalanced quarterly.
Clean Burning
Coal might inspire pictures of smoky, dirty Dickensian settings. It's also considered a big contributor to global warming. But cleaner-burning technologies, such as coal-to-gas, coal-to-liquid and sequestration techniques, should keep coal use in line with any new carbon emission regulations, noted Mike Keenan, a geologist who runs a California-based hedge fund and helped create the new ETF.
That's crucial considering how much coal is used. About 25% of the world's energy is produced from coal, which also generates 40% of its electricity (50% in the U.S.). Some 70% of the world's steel is produced with coal, and it's needed to produce polysilicon and cement.
About 80% of coal remains in the country where it's produced, but that could change. China is the biggest coal user, adding two new coal-fired stations a week. India is the second-biggest coal consumer, and U.S. coal use is mounting. Analysts expect world coal consumption to grow 74% by 2030.
Increased Production
The U.S. Energy Department said in its monthly report that it expects global oil markets to remain tight this year. Increases in production and capacity should ease the price by 2009 to less than $85 a barrel, but fuel will remain high.
The demands of emerging economies also likely will increase, and coal is expected to be the most rapid energy growth sector. Such big demand, and the fact that the coal index more than doubled last year, indicates that this ETF could be a money-making prospect.
But like any commodity, coal's price can be volatile. Consider the path of Arch Coal (NYSE:ACI - News), one of the fund's top holdings. It's seen a big pullback to its 10-week average line over the past week.
Jesse Emspak contributed to this story.
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