Glowing Prospects in the Coal Sector

Oil is not the only energy commodity going up in this market -- just take a look at coal.

The price of U.S. coal futures solidly crossed above $100 per ton this month, more than double what they were six months ago. Coal stocks have popped in response.

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Here are the fundamental forces pushing coal prices even higher and three strategies for investing in this improving sector.

The global demand for coal is rising.

About two-thirds of the world's coal currently goes to fuel electrical plants and the rest goes primarily into steel and concrete production. New demand is coming from emerging markets. Together, according to U.S. Department of Energy estimates, China and India will account for 70% of the increase in world coal consumption over the next two decades.

In addition, the surge in non-Chinese iron production is driving demand for high-grade coking coal.

Coal supplies are falling.

The biggest difference is that global supply conditions have fundamentally changed over the last year, especially in the two largest consuming countries.

China, the largest producer of coal in the world, is no longer coal self-sufficient. The booming economy was made possible by more electric power and steel plants, which both require coal to operate. The Chinese will eventually have to bring in more shipments of coal at higher prices, putting more upward pressure on global seaborne coal prices to sustain economic growth.

The story is nearly the same in India. Despite its reserves and production, India is not coal self-sufficient either, and has reduced exports too.