Coal has long been hailed the bête noire by environmentalists, but with global demand for energy growing, its popularity is only set to rise.
Coal now amounts to nearly a third of UK electricity and with the International Energy Agency estimating that energy demand will shoot up by more than two thirds over the next 20 years, coal companies are poised to take advantage.
Western Coal Corporation (WTN), the UK-listed Canadian coal producer, is growing testament to this. The AIM-listed group has pointed to a
59% price increase for hard coking coal for the fiscal year 2011.
In addition, the company said it plans on expanding its business, with the Canada, US and UK operations all earmarked for sales growth.
In the past month alone, the stock has gained over 52% and analyst Will Dymott of Cenkos Securities believes this trend will continue.
"Western now represents a financially strong company with relatively low risk expansion potential financed from cash flows with the aim of becoming a top tier international producer of seaborne metallurgical coal," Dymott said.
Metallurgical coal is a key ingredient in the making of steel and with global steel production set to increase by around 9% over this coming year, with continued growth from emerging markets, the outlook is positive.
Spot prices for metallurgical coal have already risen above the $200 a tonne level, almost double where they stood a year ago. Tim Dudley, analyst at Arbuthnot, believes UK listed coal stocks will continue to attract interest on the back of rising prices.
"Those international producers exposed to the seaborne market will continue to see historically high prices. This will be driven by growing demand in China and India against supply limitations, most acute for coking coal due to its relative scarcity as a result to barriers imposed by infrastructure limitations on new production entering the market in the near term," Dudley said.
While Asia has typically been known as an exporter rather than importer, the picture has altered of late given that its rapid growth. Barring new coal supply being discovered, some analysts say it could become a key importer.
Imports to China shot up to 34.4 million tonnes in 2009, over five times greater than the 6.85 million tonnes recorded in 2008. China is believed to have imported 13.11 million tonnes of coal in February - a jump of almost 200% year-on-year, while the country's northern Shanxi province - which accounts for one third of the country's coal output - also saw a rise in imports to 903,000 tonnes during the first two months of the year.
So confident are UK-listed companies of Asian demand, that earlier this month FTSE 100 major BHP Billiton overhauled its coal contracts from yearly to quarterly with its customers across China, India and Japan, effectively allowing it to tap in to rises in the coal price.
Charles Kernot, analyst at Evolution Securities, commented: "China's move to a net importer has also impacted international trade flows, putting pressure on shipping capacity and increasing international freight rates. We see little likelihood of this situation reversing in the foreseeable future and expect that China's demand for all forms of energy will continue to squeeze global markets."
Coal's significance becomes even more poignant in light of comments from Sir David King, the government's former chief scientist, that the world's oil reserves have been greatly exaggerated.
He claims that demand may overtake supply as soon as 2014 and conventional reserves are actually somewhere in the region of 850-900 billion, rather than the 1,150-1,350 billion barrels suggested.
Times are looking equally promising for UK domestic producers, which should benefit from the change in dynamics which make it economically unviable to import coal.
Dudley said: "UK domestic producers should benefit from the prospects of a weak pound, as spot and new contracted prices will be largely marked off the US dollar quoted price of coal, while rising freight rates, driven by raw material consumption in developing countries, reduce the economics for UK generators to import coal. This creates a great environment for many of the UK-listed coal companies to grow."
However, it is difficult to ignore the noises coming out of global governments that the world must place itself on a low carbon footing.
Greenpeace has slammed coal-fired power stations on the basis "we can't cut our CO2 emissions by 80% by 2050 and keep pumping the stuff out of our power plant", and while there remains a lack of carbon prices in most advanced economies, there continues to be uncertainty surrounding the possibility of future proposals.
UK energy supplier RWE npower recently urged the government to come to an agreement with energy companies and consumers to encourage investment into alternative energies, while the UK Department of Energy and Climate Change has pledged its support for Carbon Capture and storage technology.
However, Dymott of Cenkos Securities, believes coal companies will adapt to the changing ways.
"There are a number of new cleaner methods and I believe companies are moving in the right direction. There will be growing concern about blackouts and power supply shortages so I believe investors will continue to keenly look into this area."
Altona Energy (ANR) is just one of the companies looking to revolutionise the way coal is produced.
The AIM-listed group focuses on coal resources in the Arckaringa Basin of South Australia which it believes holds a resource equivalent to 7.8 billion barrels of clean-burning fuel for Australia and the world.
Shares in the firm have risen a hefty 188% over the past year and 50% in the past week alone following a joint venture with China National Offshore Oil Company.
Meanwhile, Subu Varada, mining analyst at Liberum Capital, said demand will far outstrip incoming regulation across the emerging markets.
"In general, government proposals are not restricting demand in emerging markets, especially from China and India. A far more important feature is the lack of infrastructure in Australia. There remains plenty of interest in coal among investors and we are bullish looking ahead."
Societe Generale believes that coal prices will be bullish in the both the medium and long term due to increasing global trade tightness, while Zacks Investment Research recently hailed 2010 as a "transformative year for the coal industry".
It could be a good time for investors to join the coal rush.
