Amid declining global coal prices, many investors may assume that coal’s profitability is fading. However, current market conditions suggest that this downturn may be temporary, potentially creating an opportune moment for strategic investment. Despite oversupply issues and financial constraints on new production, demand remains robust, particularly in emerging markets and advanced economies reliant on stable energy sources. Here’s why coal investments may be poised for a comeback.

Limited New Supply Creates Future Scarcity

One of the most significant factors supporting a potential rebound in coal prices is the sharp decline in investment in new production. Banks and shareholders have increasingly refused to fund coal projects due to ethical concerns and fears of stranded assets. This has led to a tightening supply outlook, particularly in the internationally traded coal market. Even during the record price surges of 2022, producers refrained from launching new projects, signaling long-term supply constraints.

Instead of expanding production, major mining firms have opted to acquire existing coal assets rather than develop new mines from scratch. This trend is most evident in Australia, where companies like Glencore have been buying out minority joint venture partners who were eager to exit the coal industry. As a result, global coal supply growth is lagging demand, setting the stage for potential future price appreciation.

Demand Continues to Rise, Especially In Asia

While coal consumption is declining in some regions, it remains an essential energy source for key global markets. India and China, the world’s largest consumers, are expanding their coal usage, with India’s demand expected to increase by 3% annually through 2030 [1]. While both nations are investing heavily in renewable energy, coal remains an indispensable component of their energy mix, outpacing the growth of wind and solar.

Even developed nations are leaning on coal to meet unexpected surges in electricity demand. The rise of AI and cloud computing has significantly increased energy consumption, prompting utilities in countries like the U.S. and Japan to extend the operational life of coal plants. In Germany, the transition away from nuclear power has led to reliance on mothballed coal plants to maintain grid stability.

The Market Seems To Be Near A Turning Point

Although current coal prices are hovering around $100 per ton, marking a multi-year low, this situation is unlikely to persist. Several factors suggest that a rebound could be on the horizon. One key driver is seasonal demand fluctuations. A mild winter led to lower-than-expected coal consumption, but as temperatures rise, increased use of air conditioning will drive energy demand higher, boosting coal consumption.

Beyond seasonal fluctuations, supply constraints are also contributing to market dynamics. With coal prices below $100 per ton, approximately 10% of export mines have become unprofitable, leading some producers to halt operations. This reduction in supply may tighten the market and put an upward pressure on prices. Meanwhile, the International Energy Agency (IEA) has been revising its coal demand projections upward in recent years, reversing previous expectations that global coal consumption would peak. These adjustments reflect a more sustainable reliance on coal, further supporting the possibility of a price recovery. 

Rather than a smooth decline, we believe coal’s future appears to be one of volatility, with supply shortages and demand spikes creating periodic price swings. While climate initiatives continue to attempt to challenge coal’s long-term viability, our view is that the current market dynamics suggest that it is far from obsolete.

Investors willing to capitalize on these fluctuations may find coal to be an undervalued asset. With constrained new supply, consistent demand, and periodic disruptions, coal remains a vertical component of the global energy mix, offering potential strategic opportunities for those with a long-term perspective.

How May Investors Gain Exposure to Companies in the Coal Industry?

The Range Global Coal Index ETF (COAL) seeks to provide investment results that, before fees and expenses, correspond generally to the total return performance of the Range Global Coal Index. The Index aims to track the performance of a portfolio of stocks that are involved in the met and thermal coal industry.

[1] ​Unless otherwise noted all information is from: Stapczynski, Stephen, and Will Wade. "Coal's Four-Year Lows Hide a Coming Global Supply Squeeze." Bloomberg, 1 Mar. 2025, www.bloomberg.com/news/articles/2025-03-01/coal-s-four-year-lows-hide-a-coming-global-supply-squeeze.

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