"Coal accounts for more than 70% of China's electricity," says Tony Sagami. In Uncommon Wisdom, he looks to an ETF poised to benefit from long-term rising coal demand.
"China's coal consumption is growing, and it is building coal-powered power plants at a breakneck pace.
"Why? Because they are much cheaper to build and operate than any other power-producing option. China is power starved, and coal is the main resource used for generating electricity in the country.
"China alone uses more coal than the United States, Japan and Europe combined. China is also the world's top producer of steel, a big burner of coal. More coal-fired power plants are on the way.
"Let this statistic sink into your brain — China is activating one new coal-fired plant every week of the year. The reason for the high demand is simple: Per unit of energy delivered, coal costs about one-fifth as much as oil.
"The second-thirstiest consumer of coal is the steel industry. Steel production uses a different type of coal though. Low-carbon, low-quality coal is used for electricity generation, but the high-carbon, high-quality coal is used to produce steel.
"Between coal-fired power plants and steel production, the demand for coal is going to be steady and reliable for decades to come. My point is pretty simple and one that I've repeated many times: you have to get long whatever China is buying.
"If you're more of an ETF investor, take a look at Market Vectors Coal ETF (NYSE: KOL). Its top holdings include Bucyrus Int'l, China Coal Energy, Joy Global, Massey Energy, Peabody Energy and Yanzhou Coal. Overall, coal may be dirty but it could also be a gold mine."
