What are Coal Company Stocks?
Coal company stocks are collections of shares of the companies that mine, process, and distribute coal. Coal company stocks seemed to be taking a backseat, with the coal sector witnessing a downfall and coal being declared dead, given the energy transition in progress. However, the scenario changed.
Though renewable energy has been gaining momentum in producing power and energy products and resources, India observed an unexpected surge in coal production in 2023-24, recording the highest-ever volume of 997.826 million tonnes (MT), reviving investors' interest in coal stocks. Moreover, as the petroleum and natural gas reserves are limited, coal is expected to remain a significant resource for India’s energy sector.
Why You Should Invest in Coal Company Stocks?
You should invest in coal company stocks as the coal industry is back in action due to the energy crises, geopolitical issues, and transportation challenges that authorities faced in scaling the renewable energy sector.
While the country is all set to achieve the renewable energy objective of increasing India’s renewable capacity to 500 GW by 2030, the authorities are simultaneously developing 50 GW of new coal power plants to hedge against uncertainties. This step emphasises the growing need for coal, boosting investor confidence in coal stocks yet again.
The coal deposits come from 27 coalfields spread across the eastern and south-central parts of India, including Jharkhand, Odisha, Chhattisgarh, West Bengal, and Madhya Pradesh.
However, logistics issues are still evident in coal mines. To deal with this, coal rail transport is undergoing expansion, marking an increase of 75% from 64% through 38 priority projects. This will prove yet another reason to boost investment in coal sector stocks.
What is the Future of Coal Company Stocks?
The future of coal company stocks seems bright, as coal successfully regained its position in 2024, with an indication of the rise in demand for many more years to come.
The International Energy Agency (IEA), in its report Coal 2024, stated that the decline of coal was merely an assumption, adding that the global demand for coal reached 8.77 billion tones in 2024, indicating the growth to continue to 2027 and even beyond. This increase in the demand worldwide is expected to boost the coal demand in India by 3.1% in 2025.
The government’s Vision 2030 for the coal sector emphasises the global demand for coal and identifies ways to fulfil it through adequate supply.
Additionally, the concept of clean coal as a more energy-efficient product is also expected to emerge and evolve as part of this vision, taking the coal sector to new heights.
What Factors Affect Coal Company Stock Prices?
The four factors that affect coal company stocks are production volume, demand and supply, pricing, and government initiatives.
Production: From January 2024 to December 2024, coal production reached 988.32 million tonnes, which was 7.66% more than the production recorded for the same period in 2023. The 2024 coal production, accounting for the highest-ever volume of 997.826 million tonnes (MT), reflected coal's powerful comeback, significantly affecting the companies’ stock prices.
Demand and supply: The major coal market player, Coal India Limited (CIL), provides for 80% of coal production and supply. However, as the target of producing 1.5 billion tonnes of coal by 2030 seems difficult to achieve, private players have been introduced to manage the supply. This helps cover the demand-supply gap efficiently. When not effectively handled, this gap can negatively affect the share prices of the companies.
Pricing: When coal pricing is higher, the revenue generated by the coal mining and distributing companies is also higher. Hence, coal pricing imposes a direct and positive effect on the company’s stock prices, as it shows that the company is financially healthy.
Government initiatives: The government continuously makes efforts to have clean coal reserves ready, as renewable sources cannot be relied on alone. From PM Gati Shakti National Master Plan (PMGS-NMP) to taking the Atmanirbhar Bharat scheme seriously by trying to replace coal imports with having it domestically available, the authorities keep working to boost the coal sector, which has been a basis for energy resources from ancient times.
In an attempt to achieve the goals, India has set a target to produce 1.3 billion tonnes of coal domestically by 2027 and 1.53 billion tonnes by 2025.
Global demand, environmental regulations, global market competition, and production costs are some other factors that influence coal stock prices.
What are the Advantages of Investing in Coal Company Stocks?
The advantages of investing in coal company stocks include stable returns, portfolio diversification, preservation of ancient resources, and promote sustainable practices:
Receive stable returns: Investing in coal company stocks offers the opportunity to receive steady returns. As the demand for coal is expected to rise, given the highest-ever production recorded in 2024, which saw an 8% increase in demand, investors can trust the sector stocks to perform even better in the coming years.
Diversify portfolio: By investing in coal stocks, investors can diversify their portfolios using diverse options. They can invest in coal stocks and ETFs, including thermal and metallurgical ones. For stocks, investors have another option to invest in coking coal.
Preserve ancient resources: With solar panels and wind turbines contributing to the availability of renewable energy resources, it was assumed that coal is dead.
However, by 2023 and 2024, it made a super comeback in the world that seemed to be running short of the energy requirement. In short, it emerged as a lifeline to help the energy sector to deal with energy-related shortages.
Promote sustainable practices: Per Vision 2030, cleaner coal will emerge as an improved-quality resource that does not pose any threat to the environment. The government of India has made provisions for companies that adopt clean coal technologies and introduced schemes that back projects related to coal gasification.
In fact, companies are eligible for a 50% rebate in commercial auctions of coal blocks for revenue shares of coal to be used to serve gasification purposes.
Investing in coal stocks, in short, gives investors an opportunity to contribute to developing an economy that preserves ancient sources of energy while also helping to advance sustainable living.
What are the Risks of Investing in Coal Company Stocks?
The risks of investing in coal company stocks are price modification, compliance issues, logistics problems, and frequent imports.
Price modification: Any negative change in coal pricing reduces the returns expected for an investment. Hence, before investing in this field, one must assess the pricing to check if the investment is worth it.
Compliance issues: As coal production and usage lead to multiple environmental problems, it becomes crucial for coal companies to comply with the regulatory framework. If they don’t abide by the rules, it leads to increased compliance, maintenance, and operational costs.
Logistics problems: The transportation of coal from its respective coalfield is quite a major concern. For long-distance transportation, railways are used, which take a lot of time to deliver the products on time, thereby delaying projects.
Though this issue is being worked on through the First Mile Connectivity Project, which aims to offer fast, eco-friendly, and cost-efficient coal transportation, the initiative is expected to take some time to accomplish set goals.
Frequent imports: As coal is free to import, it is not considered a good idea for India's fiscal health. The country has to import around 213 million tonnes of coal. Hence, it is better to have nationwide plants to deal with the requirements and ensure India’s economic growth instead of supporting the development of other nations.
Land acquisition, low productivity, allocation process, monopolistic tendencies, etc., are some other disadvantages of investing in this sector.
When Coal Company Stock Prices Go Up?
The coal company stock prices go up in two situations. One is when the demand for coal increases, and another is when the efficiency of the coal plants and products improves.
With improved technological deployment and willingness to have an efficient infrastructure set up to produce, process, and distribute coal in an eco-friendly manner, the companies are gaining investors’ trust while maintaining a significant price range for the coal products and output.
The coal production from April to November in 2204-25, based on the market demand, has witnessed a growth of 6.21%, accounting for 628.03 million tonnes, which is more than 591.32 million tonnes as recorded during the same period in 2023-24. This shows the positive flow of the stock prices of coal companies.
When Coal Company Stock Prices Go Down?
Coal company stock prices go down when demand or production is low. Given the major focus on renewable energy resources, coal production has reduced significantly, causing an assumption that coal is running out of demand. While renewable resources are friendly, the need for coal output faces challenges.
However, coal made a robust comeback to help with the energy transition without leading to insecurities in the form of a shortage of energy. This affected the stock prices of coal companies to a great extent.
With coal gasification and coal beneficiation, coal production became a more efficient and eco-friendly process, helping the energy resource regain its original position. Though the market demand and production before 2023 witnessed turmoil, the condition stabilised significantly in 2024.
The National Coal Index (NCI) indicated a decline of 3.48 percent in June 2024, less than 147.25 in June 2023, indicating a sufficient supply of coal in the market, which reflects the stock prices to remain table or go up because of the reliable market demand and supply.
