Coal shares divergence against stable coal prices

“Opportunity knocks” in the shares of coal producers because they have fallen far more than the commodity’s price would justify, according to Frank Holmes, chief executive officer of U.S. Global Investors Inc.

The chart tracks the performance of the Market Vectors coal exchange-traded fund, run by Van Eck Global, and the IntercontinentalExchange’s Newcastle coal futures for the past two years.

The ETF tumbled 43 percent between July 22 and Oct. 3 as five of its holdings -- Alpha Natural Resources Inc., Arch Coal Inc., Patriot Coal Corp., Peabody Energy Corp. and Walter Energy Inc. -- reduced profit or production estimates. The Newcastle index lost 0.4 percent in the same period.

“This extreme divergence between coal companies and the commodity seems unwarranted,” Holmes, based in San Antonio, wrote in an Oct. 3 blog posting that featured a similar chart.

Holmes wrote that producers still stand to benefit from rising demand from China, the world’s largest consumer of coal, as foreseen by the U.S. Energy Information Administration. The agency estimated last month that Chinese coal use will rise by an average of 2.1 percent a year from 2008 to 2035, exceeding the U.S.’s projected 0.5 percent growth rate.

Concern that global economic expansion may slow is already reflected in coal-stock prices, according to Holmes. “Fear is the driver” that sent the shares tumbling, he wrote. His firm manages $2.8 billion in assets.