Coal Stocks Under Heavy Selling This Week

July 4, 2008 6:15 p.m. EST

New York, NY (AHN) - After seeing astronomical moves higher in recent months, coal stocks were sold off this past week as the sector shed more than 15 percent.

The majority of the pullback occurred on Wednesday as evident in the 10 percent drop in the Market Vectors Coal ETF (KOL), an exchange-traded fund that tracks 41 of the major coal names. The move represented the largest one-day decline in the history of the coal ETF.

The drop on Wednesday was precipitated by reports a large hedge fund might be closing out its commodity position, according to a Barron's report.

The U.S. spot prices dropped $20 on Wednesday sparked by the largest one-day drop of European spot prices for thermal coal in three years. The European price dropped from $225 per ton to $200 per ton.

"We could have been due for a technical correction," said Evan Smith, co-manager of U.S. Global Investors Global Resources Fund, according to Investors Business Daily. "The global coal market is still very tight and the metallurgical coal (used in steel production) market is even tighter."

With the continued rise of oil and natural gas prices, coal has seen increasing demand. The use of coal to produce electricity has nearly tripled since 1970, according to the American Coalition for Clean Coal Electricity.

Global coal consumption has outpaced production every year since at least 1997, according to BP's Statistical Review of World Energy 2008.