Coal, as a fossil fuel, plays a vital role in meeting the ever-increasing demand for global energy thanks to the rapid modernisation and urbanisation. Coal is an automatic choice when it comes to energy sources because it can be found in small quantities in various countries across the globe. Despite the increasing concerns of its impact in the environment, the broad availability of this energy source in lower prices compared to other sources of fuel make it a much-preferred choice in many nations. According to a report by the World Coal Association, 37 percent of electricity in the world and 74 percent of steel production in the world depends on coal. Currently, the estimated 1.1 trillion tons of coal reserve in the world is estimated to last approximately 150 years at its current production rate. Since coal reserves are expected to last longer than natural gas and oil reserves, approaches have been taken to utilise it in a more efficient way, keeping a check on its levels of emission. This reason alone is sufficient for investors to consider coal as a viable investment option. If you are still wondering whether investing in coal is a good choice, here’s what you need to know.
A Resilient Industry
For a certain period, the coal industry was under great scrutiny despite the role it played in ensuring rapid urbanisation. Coal has primarily been held responsible for the emission of carbon dioxide during coal processing operations, thus playing a great role in enhancing the effects of global warming. In the United States, the coal industry underwent a great deal of scrutiny when the administration introduced strict regulation concerning emissions, including the Clean Power Plan. The emission plan that aimed to limit coal plant emissions sought to reduce the emission of 32 percent by 2030 from the levels of 2005. Nevertheless, this never came into effect as a result of the objections raised by states that were focused on the use of coal.
Even so, many utilities in the United States diverted their focus on coal as the primary energy source to natural gas so they can reduce their carbon footprint. Although many coal industry operators found it difficult to survive these difficulties facing their industry, the coal industry still remains resilient and very much depended upon for running many plant and factory operations all over the world.
What’s Aiding Coal Turnaround?
Operators in the coal industry tried fighting the difficult period when the prices of coal fell and the demand dropped by minimising expenses, reducing the production of coal, moving toward low-cost mines, and minimising production shifts. Nevertheless, firms could not handle the losses and some of them filed for bankruptcy protection. Despite that, things have now started changing for the better as the administration of President Trump delivers on its promise of assisting the coal industry. For instance, the withdrawal of the United States from the Paris Climate Agreement was one of the solid steps taken by Trump’s administration. Additionally, the current administration is set to replace the Clean Power Plan with the Affordable Clean Energy rule. This will make it possible for the United States to set the emission standards at different coal-fired plants. This is a much better approach as opposed to eradicating the coal usage in these power plants. What’s more, such a move from the federal government will offer the much-required relief to coal stocks. When the policy is well-implemented, it will lower the emissions of carbon dioxide at power plants.
Undeniably, global warming is a pressing issue, but it’s difficult to overlook the benefits brought about by cheap coal, among them its ability to last longer than natural gas and oil. The successful prospects of the coal industry are evident in the rapid urbanisation since cities can’t develop without cement, steel, and electricity, because all these require coal for their production.
Why Invest In Coal
Given the current role played by coal, and given its relatively low price compared to other sources of energy, investing in coal today is advisable for a number of reasons. First, the coal stocks are quite cheap. The prospects of coal are not as grim as many investors would like to believe. The coal stocks are today trading at “enticing” valuations. In addition to that, since a lot of coal companies have undergone bankruptcy in the past, they have managed to shed their debt. Currently, the coal companies are healthier than they used to be. The lower interest rates and their stronger balance sheets allow these companies to produce better earnings and pay dividends on a regular basis.
It is expected that more will be realised in terms of buybacks and dividends. This sound counterintuitive, but this is because the demand for coal will not spike dramatically any time soon. Therefore, coal firms do not actually need most of the money they make for new mines.
Whether people like it or not, coal companies will continue getting a better treatment from President Trump’s administration. Trump himself has been strongly anti-regulation and pro-coal, and this was evident during his election campaign. The current U.S. administration has developed an approach that is completely different from the past, and the coal industry appears to be thriving under the guidance of the current regime. Given all these positives surrounding the coal industry, it would be a good choice to invest in its stock now.
Coal and its industry have various shortcomings, but they have undeniably been the driver or economy not only in the United States but in the entire world as well. Coal still holds a crucial place in the energy mix, and trying to do away with it is merely impossible. The coal industry has witnessed its fair share of difficulties, but things have begun changing for the better for this industry. The increased demand for met coal in the steel industries and the demand for coal in thermal plants all portray its positive effects and the prospects of coal. These reasons and many more make the coal industry a great area to invest in.