The numbers are enough to make you do a double-take. The WisdomTree Coal Fund (TONS) is up a robust 41 percent thus far in 2016 and the Van Eck Vectors Coal ETF (KOL) is up a stunning 73 percent. An industry that was left for dead now seems to be getting a second wind.

The key questions for investors: What’s driving the renaissance, and can coal stocks and the funds that track them surge even higher?

Darwinian Evolution

The global coal industry has endured a survival-of-the-fittest shake out that has caused once-strong firms to go belly up. Peabody Energy, for example, was worth $20 billion five years ago, but sought bankruptcy protection this past May. That caps a string of more than 50 Chapter 11 filings in the industry over the past few years, led by firms such as Patriot Coal, Alpha Natural Resources and Walter Energy.

A steep drop in coal prices, along with a shift at power plants from coal to natural gas, are key reasons for the industry’s stress. But many of those domestic producers also suffered from the fact that Appalachian coal has become increasingly expensive to mine as the easy seams have already been tapped.

Yet in places such as Wyoming and Montana, mining costs are 75 percent lower at around $10 per ton. That’s why the U.S. Energy Information Administration (EIA) expects coal production in that region’s Powder River basin to rise 13.5% a year over the next five years.

A shake-out might be just what this industry needed. “The massive shutdown in coal production in the U.S. and elsewhere means that the industry is no longer plagued by overproduction,” says Steve Doyle, a long-time coal industry advisor who runs an industry blog called BTU Baron LLC.

In fact, domestic coal production has fallen more than 30 percent thus far in 2016, according to S&P Global Platts. And coal production in China actually peaked in 2012 and is set to fall further as the Chinese government pushes mining firms to shrink output by another 16 percent. Output in Indonesia and Australia, two other large coal producers, is also off by double-digits this year.

Demand Is Still There

The demand side of the equation is also less bad than feared. “Between carbon emission mandates and Chinese growth slowdown, coal demand was expected to get hit really hard. Instead, demand proved to be resilient and the deep production cuts in China helped the market rebound,” said Harish Sundaresh, senior commodities strategist at Loomis Sayles, in an email interview. 

Indeed, Chinese coal imports rose 30 percent in this year’s first half of 2016 versus a year ago. And across the rest of Asia, coal demand is on the rise. Macquarie predicts that energy consumption in that region will rise 31 percent over the next decade, and two-thirds of that increase will be met by fossil fuels such as coal.

The demand outlook in the United States may also be firmer than expected. While coal’s role in power plants has fallen from 48 percent to 33 percent in the past decade, the EIA thinks it will fall to only 30 percent by 2030. 

The International Energy Agency predicts that coal’s share of primary energy consumption will fall from 28 percent in 2012 to 22% in 2040. Yet that should still translate into a modest 0.6 percent growth rate in coal consumption through 2040, thanks to the fact that global power needs continue to grow at a rapid pace. In effect, coal will garner a smaller slice of a much larger pie.

To get a sense of the outlook for the coal ETFs, it helps to look at the prospects of the underlying holdings. With a nine percent weighting, Teck Resources Limited is the largest member of the Van Eck Vectors Coal ETF. A slew of cost cuts and an improved revenue picture has pushed this stock up from a 52-week low below $3 up to $16.28 as of yesterday’s closing price. Paradigm Capital’s David Davidson sees shares rising to $23, which equates to book value.

This ETF, which was launched in early 2008 and carries a 0.59 percent expense ratio, has 70 percent of its assets outside of North America. Fully 44 percent of the firms—by weighting—come from China and Australia, which is a major coal supplier to China. Around 35 percent of the fund is invested in firms that sell mining equipment, and the remainder are either coal miners or energy producers.

The Wisdom Tree Coal Fund, which carries a 1.25 percent expense ratio, is not as popular a choice with investors with just $1.1 million in assets versus $76.4 million for the Van Eck ETF. It was launched in February 2015, and may just need more time to gain traction with investors.

This fund doesn’t track coal stocks, but instead focuses on coal futures contracts. The fact that global thermal coal benchmark prices are up 30 percent this year, while coking coal prices (which is used in steel-making) have risen 20 percent, has surely aided this ETF’s returns.

So the real question is: Will China’s appetite for coal last? It looks like the massive shakeout in the coal industry has come to an end as the weakest firms in the highest-cost mining regions are already in bankruptcy. With pricing and demand now stabilizing, the surviving coal stocks—and the ETFs that track them—should benefit in coming years from a more stable backdrop.

Like with Big Tobacco, coal stocks and funds may have become social pariahs, but they will continue attracting some investors with their appealing cash flow valuations.