The Market Vectors Coal (KOL) has plunged 28 percent this, making it one of the worst-performing non-leveraged sector ETFs. Demand for coal from China, India and other developing nations, previously one of the catalysts that sparked KOL higher, has not helped the ETF this year. Nor have low natural gas prices that have made that cleaner-burning commodity more attractive to U.S. electric utilities.
Investors may want to readjust their view of KOL because the fund is up 3.8% in the past week, with the bulk of those gains being accrued last Thursday and Friday. KOL closed higher by 3.2% last Friday, a gain that enabled the downtrodden fund to close above its 50-day moving average for the first time since May. The ETF has only traded above that important technical indicator a handful of days this year. [Coal ETF Tries to Emerge From the Abyss]
KOL soared last Friday after Moody’s Investors Service made comments that implied the worst may be over for beaten up coal stocks. The ratings agency raised its coal industry outlook to stable from negative while saying it does not expect already weak coal sector conditions to worsen over the next 12 to 18 months. [KOL's Collapse Turns Nasty]
“Sustained natural gas prices will prop up demand for the thermal coal used in power production through mid-2014 to early 2015, Anna Zubets-Anderson says, while supply rationalization should help stabilize prices for metallurgical coal, which is used in steelmaking. Nonetheless, the US coal industry has little room left to cut costs, and will earn lower EBITDA in 2013 than in 2012 due to lower prices, before EBITDA flattens in 2014,” according to a statement issued by Moody’s.
Moody’s said Cloud Peak Energy (CLD) will benefit from higher natural gas prices, but companies such as such as Alpha Natural Resources (ANR) and Walter Energy (WLT) “will feel pressure from low prices at least though next year. Producers will generate less EBITDA from met coal in 2014 than in 2013, as higher-priced contracts expire.”
In June, shares of Walter sank after the company pulled a planned $1.55 billion credit refinancing plan. Although Walter’s second-quarter metallurgical coal output was about 2.9 million metric tons, about 7 percent more than, the company slashed its quarterly dividend to a penny a share from 12.5 cents
Alpha Natural, Cloud Peak and Walter combine for 7.3% of KOL’s weight. The fund’s largest holding is Consol Energy (CNX), which garners a weight of 8.4%. KOL has not traded above its 200-day moving average since late February.
Market Vectors Coal ETF
ETF Trends editorial team contributed to this post.
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.