Qualities of Coal Available for Commodities Investment - dummies

Qualities of Coal Available for Commodities Investment

By Amine Bouchentouf

As with other fossil fuel commodities, coal comes in different qualities. Specifically, coal comes in four categories, classified by its carbon, sulfur, and ash content, as well as by the level of energy it releases.

Here are the four major categories of coal:

  • Lignite: Lignite contains the least amount of carbon and the most sulfur and ash of all coal types, so it’s considered the least valuable. Sometimes called brown coal, it’s primarily used in generating electricity.

  • Sub-bituminous: This type of coal contains a little more carbon than lignite and thus is considered to be of a higher quality. It also has lower levels of sulfur and ash than lignite. It’s used mostly to heat water in electricity-generating steam turbines.

  • Bituminous: Because bituminous coal burns well and creates a lot of energy, it’s of high value. The most common type of coal found in the United States, it’s used to generate electricity and, in the steel industry, create high-quality steel.

  • Anthracite: By far the most valuable type of coal, anthracite contains the highest levels of carbon and the least amount of sulfur and ash; it also provides the most energy on a per-unit basis. Because of its high value, anthracite is used for residential and commercial space heating.

Before you invest in companies involved in the coal business, find out which type of coal they produce. This information will help you better understand the company’s business and profit margins. You can find this information in a company’s annual and quarterly reports.