In the shadow of oil, coal markets rise from the ashes

February 4, 2018, 6:53 pm | Admin

SINGAPORE/MELBOURNE (Reuters) - Far from entering the death throes predicted by some environmentalists and analysts, thermal coal miners are enjoying their best returns in years as strong Asian demand and tight supplies send prices soaring.

 
Chinese thermal coal futures hit a record of 687 yuan ($108.49) this week, up five-fold from their 2016 lows. Coal cargo prices from Australia’s Newcastle terminal, meanwhile, have roughly doubled since 2016 lows to over $100 per tonne, not far off 2011/2012 levels.
 
“The coal price improvement has thrown into stark relief the robustness of underlying demand in Asia,” Paul Flynn, chief executive of Australian miner Whitehaven Coal, told Reuters. “This had been masked until recent times by the surplus of capacity constructed during the last cycle. This period has now passed.”
 
While the spotlight of a broad energy market revival has been on oil and natural gas, specialist thermal coal miners are enjoying an even better run, suggesting investors think this much reviled fossil fuel has life in it still.
 
“We made global thermal coal our favourite commodity in October and stuck with it,” said Jeremy Sussman, New York-based analyst at brokerage and investment bank Clarksons Platou.
 
Whitehaven, Indonesia’s Adaro Energy and global commodity merchant Glencore have all seen their share prices multiply from record lows in 2015/2016, hitting levels last seen during the mining boom before 2012.
 
“We expect coal prices to remain meaningfully higher than expectations, and as such, believe Whitehaven can keep moving higher,” Sussman said.
 
COAL BEATS GAS
 
The rise in coal prices has taken many by surprise. Morningstar Equity Research said coal prices “have fared better than we expected due to continued strong growth in China”.
 
As a result, Whitehaven has seen its share price soar 10-fold percent since its early 2016 low. Adaro and Glencore have enjoyed rallies of 330 percent and 290 percent, respectively. Shares in Thai coal miner Banpu are up 85 percent.
 
That compares to increases of 18 to 45 percent for competitors specialising in exporting liquefied natural gas (LNG), including Australia’s Woodside Petroleum and Santos or U.S. firm Cheniere.
 
With many listed investors shunning coal due to concerns and pressure over its environmental impact, the profits of the coal boom are being enjoyed by others.
 
Whitehaven’s biggest shareholders are U.S.-based Farallon Capital Management, which holds 14 percent of the stock, followed by specialist mining investor AMCI Group with 8.4 percent.
 
AMCI Group Managing Director Brian Beem said the outlook for high grade thermal coal and steelmaking coal was positive.
 
“The urbanization and electrification of Asia will continue to drive demand for these commodities, and we see supply struggling to meet that demand because of depletion and lack of investment in new capacity,” Beem said in emailed comments.
 
Farallon Capital Management declined to comment.
 
The main investors in commodity Glencore include Qatar Holding, a state investment firm of the world’s top LNG exporter, which has a policy not to talk to media about investment.
 
Glencore, the world’s biggest single thermal coal exporting firm, said it could not comment for this article as it is in close period ahead of its annual results.
 
During an investor call in December, Glencore said it expects an average coal production unit cost of $48 per tonne in 2018, allowing it to comfortably generate cash at current prices.
 
General under-investment in the sector in past years was allowing the company to now reap the benefits of higher prices, Glencore added.
 
Indonesia’s Adaro declined to comment.
 
Last modified on February 5, 2018, 6:57 pm | 941