Coal news and updates

King Coal Lives On

Since the dawn of the industrial revolution, “King” Coal has been powering economic expansion around the world. By 2021 in a world reportedly choking on fossil fuel emissions in the atmosphere, the United Nations sponsored a conference on climate change in Glasgow Scotland.

The COP26 conference ended with an agreement signed by many – but not all – of the world’s largest emitters of carbon into our air. The agreement originally called for wealthier signatories to phase out the use of coal by 2030 and less wealthy countries by 2040 around the world. The agreement also called for countries to cease granting permits for new coal-fired power stations.

The agreement was hailed by officials at the UN as consigning the dirtiest of all fossil fuels to the dustbin of history. This was not the first time in recent memory when investors read many speculative opinions about the death of King Coal.

In 2013 China was rattling its saber about restricting imports of low quality, higher polluting thermal coal, used to generate electricity. An article appearing here on thebull.com.au at the time traced the recent history of the price of coal which had collapsed in the GFC and then rebounded in 2010 into 2011. Flooding in Southeast Asia and the Fukushima nuclear disaster led the upward movement in the price. The equation changed dramatically when the oil and gas shale boom in the US drove down the price of natural gas below the price of coal.

By 2015 global consumption of coal turned negative according to an analysis conducted by Greenpeace. A 9 November of 2015 article appearing on the website unearthed.greenpeace.org included the following graph.

The Greenpeace analysis claims coal’s place in the mix of global energy sources would decline by 36% at the end of 2015, with production hitting a 30 year low. The organisation cited China’s clamping down on air pollution as the prime mover for the fall.

The cries of the demise of coal as an energy source got a boost from a raft of bankruptcies of major US coal producers in 2015 and on into 2016. Major US banks at the time were not funding capital expansion plans for future coal-related products.

Contrarian investors who ignored the numerous death sentences issued for coal and took a risk in 2016 through 2021 have been well rewarded. Some may have focused on contrarian indicators to conventional wisdom, beginning with the telling fact that outside the US market, coal maintained its price advantage over natural gas. China and India, these astute investors reasoned, were the key to growing demand for Australian coal.

Further indicators were present for the risk tolerant. The virtual ban on any developments to increase coal production set the world up for a supply/demand imbalance, which is now driving the prices up substantially.

Finally, despite analyses too numerous to mention ridiculing the “Clean Coal” efforts, both the Australian and US Governments are funding CCS (Carbon Capture Storage) technologies.

The price of coal was already on a major upswing before the Russian invasion of Ukraine plunged global energy markets into chaos. From an article appearing in

Some investors look for what they consider are “ethical” companies as part of their investing philosophy. Others see coal miners as a downtrodden group with a future that is challenging to understand, considering the vast divergence of expert opinions on the sector. The past is not subject to debate. Since the GFC (Great Financial Crisis) coal has “risen from the dead” multiple times.

The following graph from the businessinsider.com website tracks the price movements of coal since 2009.

In at least one aspect, investing in coal miners may be the most challenging buy of all – the divergence of expert opinion.

In summary, the Bear case argues the current rally is a “blip” with long term headwinds ready to drown investor enthusiasm. Researchers at the Australian National University studying China’s decarbonisation plans have concluded Chinas’ thermal coal imports could decrease between 26% AND 45% BY 2025.

The Bull Case is best summarised in a recent note from Credit Suisse – a financial institution that claimed the outlook for the coal sector was “dire” back in 2015. By 2017 Credit Suisse increased its forecasts for thermal coal, with the latest note issued in early May of 2022 expecting elevated coal prices to remain in place. Citing geopolitical concerns, the company stated the global rush to be rid of Russian coal will likely support healthy premiums on Australian exports. Credit Suisse has OUTPERFORM ratings on two top ASX coal miners – Whitehaven Coal (WHC) and New Hope Corporation (NHC).

To support the view of Credit Suisse, investors need only look at the latest trade export numbers here in Australia. The May 22 figures released by the Australian Bureau of Statistics (ABS) showed a 9.5% increase of exports of good and services, with a 20% rise in coal exports leading the way. The May numbers were up 38.6% from the same period one year ago.

Exports of coal used for power generation (thermal coal) reportedly went from $16 billion dollars to $39 billion while the coal used for making steel – coking or metallurgical coal – rose from $23 billion to $60 billion. All this despite the Chinese ban on Australian coal initiated in 2020.

Given the lack of consensus opinion on the longer term outlook for coal, sticking with the major players may be a prudent strategy. The following table lists relevant metrics for Whitehaven and New Hope along with two other stocks.