Behind The Coal ETF’s 84.5% Year-to-Date Resurgence

Up 84.5% year-to-date, the VanEck Vectors Coal ETF (NYSEArca: KOL), which tracks the coal industry, is one of this year’s best-performing non-leveraged exchange traded funds. That after several years of being a laggard.

China has helped coal prices and the industry reverse course this yer after Beijing imposed a five-day week working week for domestic mines in an attempt to diminish an oversupplied market.

Earlier this y ear, China’s State Administration of Work Safety said working days for coal miners will be cut to 276 per year from 330 as China cut 500 million tons of coal production capacity over the next three to five years, according to Reuters. Mines typically operate 24 hours a day, seven days a week.

Contributing to the surge in coal prices this year, China has drastically curbed its domestic coal production since April. Beijing is limiting the number of days miners can work in an attempt to control a bloated sector. Meanwhile, heavy rainfall across China’s northern coalfields have disrupted local mines and railways.

Consequently, Chinese imports of coking coal have increased 12% in the first seven months of the year and caught many traders by surprise.

Morgan Stanley analyst Tom Price called the scale of the rally “a complete surprise.”

Looking ahead, the coal industry’s good fortune is ultimately tied to restrictions on China’s output, UBS Group AG said, also raising its coking-coal forecasts for this year and the next.

SEE MORE: Coal ETFs Fire Up on Easing Chinese Production

“Lost in the sea of negative reports is the fact that premium hard coking coal prices have more than doubled in the past six weeks alone. But this short-term trend is just part of a larger story playing out in the coal space throughout this year,” according to ETF Daily News.

The ongoing shale oil boom has pressured natural gas prices and made natgas a cheap alternative to coal. Additionally, new environmental regulations have forced coal-fired power plants to close, and many are being replaced with natural gas.

“The ongoing shale oil boom has pressured natural gas prices and made natgas a cheap alternative to coal. Additionally, new environmental regulations have forced coal-fired power plants to close, and many are being replaced with natural gas,” adds ETF Daily News.

For more information on the coal industry, visit our coal category.

VanEck Vectors Coal ETF

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.

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