Two Drivers Pushing Coal ETFs Higher

Coal-focused exchange traded funds (ETFs) have been on a tear year-to-date. While we search for reasons why, two factors are standing head and shoulders over most others.

• Demand from China. Coal is the primary source of energy within the country of China, and the need for more of the commodity is so strong that 16.07 million tons of coal was imported in June. Coal also accounts for 25% of the world’s energy needs.Tony Sagami for Uncommon Wisdom reports that coal is so cheap and abundant that China is building coal-fired plants at a fast pace because it is the sole supplier of electricity  in the country. China is set to use 3.4 billion tons of coal by the year 2020.

  Likewise, remember that steel production also requires coal, and China is on the fast track for industrialization. China is also the number one producer of stainless steel, which uses coal in the production process.

• Interest in alternative energy. The alarms have been sounded: we’re quickly running out of oil. This impending threat has investors seeking out other forms of energy, including solar, wind and yes, even coal. While the debate about how “clean” clean coal actually can be rages on, it hasn’t stopped investors from taking a gander. It’s generating even more interest as oil hits 10-month highs.

ETFs to watch for signs of more activity in the coal industry include:

• Market Vectors Coal ETF (KOL): up 89.6% year-to-date

• PowerShares Global Coal (PKOL): up 84.3% year-to-date

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