Coal ETF Still Hoping Trump Delivers

Markets Benzinga

The VanEck Vectors Coal ETF (KOL) was one of last year's best-performing non-leveraged exchange-traded funds for a simple reason: Of the two nominees for the U.S. presidency, one was vocal in her disdain for the coal industry while one vowed to restore the industry's lost jobs.

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President Donald Trump, obviously, was the candidate that promised to restore coal country's lost glory and KOL responded. The ETF is doing so again this year with a year-to-date gain of almost 18 percent. That means KOL has nearly doubled in value over the past year. Still, there are ample indications that Trump's promises to coal miners will be hard to keep.

Promises Kept Or Promises Broken?

U.S. utilities, previously a primary source of coal demand in this country have been switching to cheaper, cleaner natural gas and there do not appear to be many indications that they will reverse course back to coal.

Coal accounted for 57 percent of electricity generation in 1988 but that share fell to 53 percent in 1998 and 50 percent in 2008, according to Reuters. Gas has been the main beneficiary with its share of generation climbing from 9 percent in 1988 and 13 percent in 1998 to 20 percent in 2008.

Metallurgical coal demand has been solid over the past few years and that trend could continue. That is a plus for companies that produce that variety of coal, which is used to make steel. In fact, metallurgical coal inventories resided near multi-year lows around Election Day. That trend will need to continue to give investors reason to gloss over waning thermal coal demand from electric utilities.

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But the medium-term outlook for the coal industry remains poor, with more coal-fired power plants scheduled to close over the next five years to be replaced by a combination of gas and renewable, reported Reuters. Gas-fired generating capacity is scheduled to expand by another 8 percent over 2017/18 according to data from the U.S. Energy Information Administration. At the same time, more coal plants are set to close, which will cut potential demand further even if gas prices increase modestly.

Investors have added $3.88 million to KOL this year, bring its assets under management tally to $123.4 million.

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