Even though he has spent millions in climate change research, billionaire George Soros has decided to invest in coal. Is this the typical contradiction of plutocrats who advocate one thing while doing another? Or has the Soros Fund Management (SMF) discovered a way to reconcile profits from the most carbon-rich energy source with environmental responsibility?
George Soros has financed many organizations involved in developing clean energy solutions at first glance. According to The Guardian, SMF has spent over $2.0 million in the purchase of shares of Peabody Energy Corporation (NYSE:BTU) and Arch Coal Inc (NYSE:ACI), which have come under pressure due to sharply lower coal prices. Their stock value has dropped over 90% since a year ago.
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Indeed, metallurgical coal prices are at an 11-year low while futures for thermal coal have dropped to $52.00/metric ton—the lowest price in 12 years—due to oversupply and weakening demand in India and China. Still, Soros is noted for exploiting the opportunities that others miss. The coal situation has gotten so desperate that many American coal companies have filed for bankruptcy.
SMF can now boast having a million shares of Peabody and 500,000 shares of Arch Coal. Meanwhile, in 2014, Soros bought some $234 million worth of CONSOL Energy Inc. (NYSE:CNX). And as it happens, the stock is trading 0.54% higher this morning.
Evidently, Soros wants to take advantage of low coal prices. Nevertheless, if he’s buying, he must also see considerable upside and a turnaround in the industry. Indeed, Soros may even have helped to bring down stock prices, only to buy them in large numbers, ready to sell them and make a huge profit on the first bounce-back.
Moreover, by investing in coal, he is showing that green energy. Rather than being some fad or ideological pursuit, it’s an actual profit-generating industry promising substantial returns. If Soros invests in coal and green energy, he is acting in good old-fashioned greed—whether it’s environmentally sustainable or not.
Alternatively, should Soros actually have a green conscience being truly committed to the environmental cause (unlikely), he could use his heavy positions in the last major U.S. coal companies to shut them down permanently. He can easily buy enough shares to take control of these companies and then simply close them. This would leave some 11 billion metric tons of coal in reserves behind, thus helping to “save” the planet.
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Certainly, coal, like many other commodities, has reached such low prices—potentially offering huge gains in case of a trend reversal. Soros has rekindled interest in this resource and the energy sector as well.
In fact, even if the World Bank endorses the elimination of coal from the global energy mix by 2100, and even if such a phenomenon were achieved, there are at least a few more decades of demand left in this much-maligned resource, which fueled the industrial revolution.
The main reason for low coal prices today, Soros notwithstanding, is the continuing global economic slowdown and the high U.S. dollar. Haywood Securities says the average price of coal for the current year will be around $125.00 per tonne—lower than previous forecast of $130.00. In 2016, prices are expected to rise to $140.00. In 2017, it could hit $150.00. In 2013 the price had was close to $180.00 per tonne.
This suggests that Soros could simply be betting on medium-term price increases rather than machinating Superman movie-themed schemes. Coal could well return to the price levels of 2013 or go even higher if European industrial growth continues to recover—not to mention some BRICS countries.
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China remains the main locomotive on demand, especially the metallurgical coal used in steel production. In the medium and long term, however, there is some hope that things can change. Europe is seeing some growth again and, while alternative energy may be grabbing more headlines than coal these days, there is still no substitute for coking coal in the making of steel. This means that prices will increase in the longer term or whenever the current oversupply stabilizes.