Coal Futures and Coal Companies as Investments - dummies

Coal Futures and Coal Companies as Investments

You can get access to the coal markets in two ways: one way is by trading coal futures, and the other is by investing in coal companies.

  • Coal futures: Coal has an underlying futures contract that trades on a commodity exchange, in this case the New York Mercantile Exchange (NYMEX). The coal futures contract on the NYMEX tracks the price of the high quality Central Appalachian coal (CAPP), sometimes affectionately called the big sandy.

    The CAPP futures contract is the premium benchmark for coal prices in the United States. It trades under the ticker symbol QL and is tradable during all the calendar months of the current year, in addition to all calendar months in the subsequent three years.

    Most of the traders in this market represent large commercial interests that transact with each other, which means that you may not be able to get involved directly in this market without large capital reserves to compete with the commercial interests.

  • Coal companies: One good way to invest in coal is by investing in a company that mines it. The following three companies are among the better options:

    • Peabody Energy (NYSE: BTU): This is the largest coal company in the United States with approximately 10.2 billion short tons of coal reserves. The coal that Peabody produces is responsible for generating approximately 10 percent of the electricity in the United States.

    • Consol Energy (NYSE: CNX): Headquartered in Pittsburgh, Consol Energy has significant operations in the coal mines of Pennsylvania and the neighboring coal-rich states of West Virginia and Kentucky. As of 2006, it controlled 4.5 billion short tons of coal reserves, with operations in over 17 mines across the United States.

    • Arch Coal (NYSE: ACI): Smaller in size than Peabody or Consol, Arch Coal operates more than 20 mines on the continental United States and controls more than 3 billion short tons of reserves.