Investing in coal stocks
A fossil fuel critical to energy production — what to know before investing.
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The coal industry powers the world. But there are some risks when investing in coal stocks — including the rise of natural gas, government policies and fluctuating demand.
What is coal?
Coal is a rock that’s predominantly made of carbon. Its combustible properties make it useful to burn for fuel, and coal accounts for almost 40% of the world’s electricity generation.
Ten countries produce 90% of the world’s coal, with China, India and the United States leading the pack. Despite a growing climate change movement and calls for green energy, the coal demand is forecasted to remain stable into 2024.
Coal stocks are stocks in any companies that mine and process coal for electricity plants and steel production.
Why invest in coal stocks?
China consumed over 50% of the world’s coal production in 2018, according to the BP Statistical Review of World Energy. While the global coal demand should remain stable through 2024, China’s coal demand is predicted to peak in 2025.
High demand for this fossil fuel is likely to bump coal stock prices in the foreseeable future. So although coal won’t be the dominant energy source that it once was during the Industrial Revolution, it’s not going anywhere yet.
Risks of investing in coal stocks
Coal stocks face three primary obstacles:
- Government policies. When coal is burned for energy, it produces greenhouse gas emissions. Governments are adopting stronger climate policies to reduce air pollution by slowly phasing out coal power generation.
- Competition. Renewable energy, including wind, solar power and natural gas, are slowly edging coal out of the market. For example, coal generation is forecasted to drop by more than 5% every year through 2024 in Europe and the United States.
- Developments in China. Being a coal consumer giant, China strongly influences coal demand. China anticipates consumption to peak in 2025, while the International Energy Agency thinks demand could plateau as soon as 2022. Either way, coal demand will steadily fall as China weans off of coal and implements its cleaner energy strategy.
Many coal stocks trade on the New York Stock Exchange. But certain stocks, including China Shenhua Energy Co. Ltd., are only available over-the-counter or from an international exchange.
What ETFs track the coal category?
One exchange-traded fund in the coal industry is the VanEck Vectors Coal ETF (KOL). This ETF tracks the overall performance of companies involved in coal operations.
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You’ll need a brokerage account to purchase coal stocks in Australia. Take a look at a few popular brokers to find one that fits your investing goals.
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Important: Share trading can be financially risky and the value of your investment can go down as well as up. “Standard brokerage” fee is the cost to trade $1,000 or less of ASX-listed shares and ETFs without any qualifications or special eligibility. If ASX shares aren’t available, the fee shown is for US shares. Where both CHESS sponsored and custodian shares are offered, we display the cheapest option.
Coal stocks could be a solid short-term investing opportunity. Demand should steadily increase in the upcoming years, but keep your eye on renewable energy and natural gas that’s slowly inching toward a bigger piece of the energy pie.
To invest in coal, compare trading platforms to open a brokerage account.
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