Two Surprising Beneficiaries of Resurrection of Dirtiest of All Fossil Fuels

Prices for coal on China’s Dalian Commodity Exchange increased by 9% over the past week, reaching a record of about $ 514 per ton. Likewise, according to Reuters, State-run Coal India (COAL.NS) said this week higher global prices of coal and freight rates have pushed utilities dependent on imported coal to curtail power production, resulting in higher dependence on domestic coal-fired plants. India is the world's second-largest importer of coal despite having the fourth-largest reserves. Utilities make up about three-fourths of its overall consumption, with Coal India accounting for over 80% of the country's production. Over half of India's 135 coal-fired power plants have fuel stocks of less than three days, government data shows, far short of federal guidelines recommending supplies of at least two weeks.

The main reason for the price rally is the looming energy crisis amplified by a worldwide reduction in coal production to comply with a new greenhouse and combustion gases’ emission standards, as well as difficulties with imports due to quarantine restrictions related to COVID-19.

Undoubtedly, the rise in coal prices in China is positive for the entire coal outlook, where one of the most well-known instruments have been KOL – VanEck Vectors Coal ETF.

Several classic coal-producing countries - especially those which were lingering with adopting new environmental standards – came in as surprising beneficiaries of the current events. Thus, Russian coal companies: Raspadskaya (RASP.MX) and Mechel (MTLR.MX). These companies are having the following shares of coal exports to China: • Raspadskaya - 38% of the total production; • Mechel - 25% of the total production. Input costs, including labor costs, are muted due to the ruble’s inherent weakness. Thus, the rise in coal prices will strengthen the financial position of these companies in the long run and will most likely boostt their share performances.