Must-know: Why coal ranks differ from each other

Must-know: Why coal ranks differ from each other


May. 3 2021, Updated 11:13 a.m. ET

How coal ranks are different

Coal’s carbon component is what makes up its energy. Naturally, lignite has the lowest energy content or heating value according to weight. Lignite, sometimes called brown coal, has a chocolate-like color. It’s mainly used to power electricity.

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Must-know: Why coal ranks differ from each other

On the right side of the chart above, we have higher-ranked coal with higher energy and lower moisture content. It’s used for industrial and steel production purposes. This coal is darker and shinier.

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Coal used for electricity purposes is often called steam or thermal coal. Coal used to make steel is called metallurgical (or met) or coking coal. Cloud Peak Energy (CLD) only produces thermal coal. Walter Energy (WLT) calls itself a pure-play met coal producer. Other producers like Arch Coal (ACI) and Alpha Natural Resources (ANR) produce met and thermal coal. The VanEck Vectors Coal ETF (KOL) invests in met and thermal coal producers. American coal producers account for 36% of the exchange-traded fund’s (or ETF) holdings.

Coal ranks reflect the coal’s maturity. Each rank gets converted into a higher rank as pressure, heat, and time alter its chemical and physical properties. The process is very slow. It spans millions of years. Just to give you a rough estimate, American coal deposits are ~300 million years old!

Before we start analyzing different coal producing regions’ economies, it’s important to know about the impurities trapped in the coal. The impurities impact the environment. The Environmental Protection Agency’s (or EPA) EPA’s war against coal is mainly due to how coal negatively impacts the environment. Learning about the impurities will help you understand the regions and producers that can fight the new regulations.


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