The accompanying chart presents an 8-week analysis of global coal futures prices as a follow-up to my previous 5-month analysis last month, Market Vectors Coal ETF (KOL), PowerShares Global Coal ETF (PKOL), S&P 500 ETF (SPY), U.S. Natural Gas (UNG) + Oil (USO) Funds, and the Energy Sector ETF (XLE). The global price of coal is tracked by the near-month coal futures contracts from the U.S. (QL – Central Appalachian NYMEX Coal Futures), South Africa (AFR – Richards Bay ICE Coal Futures), and Europe (ATW – Rotterdam ICE Coal Futures) – posting a decline of 38% on an equally-weighted average of the three coal futures contracts.
The 38% decline for the global price of coal during the previous eight weeks of unprecedented market volatility compares with declines of 28% for the S&P 500 SPDR, more than 50% each for the two company-based coal ETFs (KOL + PKOL), a decline of 46% for USO, 20% for UNG, and 29% for the Energy Sector SPDR. Nearly all of the data over the past eight weeks was highly correlated at 0.9 or greater, except for XLE, which holds major positions in diversified energy giants such as Exxon Mobil (XOM), Chevron (CVX), and Conoco Phillips (COP).
Given the importance of coal in the global energy markets, the lack of a commodity pool fund for coal, and the low correlation of KOL to global coal prices; a CoalFund could be developed as a new commodity pool fund to provide investors with exposure to the performance of near-month futures contracts for global coal prices from the following four major coal producing and exporting regions in the world as specified below.
1.) United States (40% - 70%): NYMEX Central Appalachian Coal Futures (QL), Western Rail Powder River Basin Coal Swap Futures (QP), Eastern Rail CSX Coal Swap Futures (QX)
2.) Europe (15% - 30%): Intercontinental Exchange (ICE) Futures Rotterdam (ATW)
3.) South Africa (15% - 30%): ICE Futures Richards Bay (AFR)
4.) Asia (up to 25% when issued) (Newcastle, Australia): ICE Futures – globalCOAL NEWC Index, ASX Thermal FOB Newcastle
The 38% decline for the global price of coal during the previous eight weeks of unprecedented market volatility compares with declines of 28% for the S&P 500 SPDR, more than 50% each for the two company-based coal ETFs (KOL + PKOL), a decline of 46% for USO, 20% for UNG, and 29% for the Energy Sector SPDR. Nearly all of the data over the past eight weeks was highly correlated at 0.9 or greater, except for XLE, which holds major positions in diversified energy giants such as Exxon Mobil (XOM), Chevron (CVX), and Conoco Phillips (COP).
Given the importance of coal in the global energy markets, the lack of a commodity pool fund for coal, and the low correlation of KOL to global coal prices; a CoalFund could be developed as a new commodity pool fund to provide investors with exposure to the performance of near-month futures contracts for global coal prices from the following four major coal producing and exporting regions in the world as specified below.
1.) United States (40% - 70%): NYMEX Central Appalachian Coal Futures (QL), Western Rail Powder River Basin Coal Swap Futures (QP), Eastern Rail CSX Coal Swap Futures (QX)
2.) Europe (15% - 30%): Intercontinental Exchange (ICE) Futures Rotterdam (ATW)
3.) South Africa (15% - 30%): ICE Futures Richards Bay (AFR)
4.) Asia (up to 25% when issued) (Newcastle, Australia): ICE Futures – globalCOAL NEWC Index, ASX Thermal FOB Newcastle
$70.98 (11/17/08)
