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February 1, 2017

A Dynamic Commodities Exclusive

While there are some coal contracts on futures exchanges around the world, it is mostly a physical market. The United States, Russia and China have the largest coal reserves in the world. China and the U.S. are the world’s largest consumers. Both nations use coal in the generation of electricity. Historically, the price of coal has been lower than the prices of oil or natural gas.

Burning coal or other fossil fuels emits carbon dioxide, sulfur dioxide, arsenic, lead, and other harmful toxins. A global system of emission allowances has developed over recent decades that limited the amount of emissions each year. Power companies trade these allowances. Those that emit less can sell their excess while those that have greater emissions than allowable under regulatory guidelines must purchase allowances in the open market to comply with regulations.

Until 2017, coal was a dying form of energy in the United States and the price of the energy commodity fell dramatically, many coal mines closed and many workers lost their jobs. However, the election of President Donald J. Trump may change the coal business in the U.S. On the campaign trail, the President promised that he would cut regulations returning many coal miners to work in the nation.

Meanwhile, massive discoveries of natural gas in the United States have caused the price of the energy commodity to fall dramatically. In 2016, the price of NYMEX natural gas fell to the lowest level since 1998. By early 2017, natural gas was trading at twice the price it was at the 2016 lows. Meanwhile, in early 2016 the price of coal fell to dramatic lows but the price of this energy commodity had also doubled by the beginning of 2017. Many power plants in the United States have switched from coal to natural gas because of regulations and concerns for the environment. However, an energy hungry world will continue to require coal-based energy in the years to come.

Technology has addressed and improved the environmental issues surrounding coal. This technology can capture or reduce greenhouse gases produced from burning coal thus creating cleaner coal. Additionally, innovative methods of liquefying coal to make it more environmentally friendly is likely to improve and enhance the coal market in the years ahead.

Coal is an important and abundant energy commodity. The world will continue to depend on coal-based energy and technology will help to solve many of the environmental concerns. KOL is an ETF product that reflects the price action in the coal market.

Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities

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