It was a sea of red for the S&P/ASX 200 Energy Index on Monday, down -5.2% to a 3-month low amid a broad-based selloff for commodity prices.
Coal stocks, which have been on a spectacular run this year, couldn't help but sell off too. Notable names like Whitehaven Coal (ASX: WHC), Coronado Global (ASX: CRN) and New Hope (ASX: NHC), all dipped more than -9% on Monday.
Coal stocks didn't stand a chance on Monday amid broader market weakness and a flurry of negative catalysts, including:
US Energy sector fell an outsized -5.6% last Friday
Broad-based plummet for commodity prices
Iron ore was down as much as -10% and coking coal -6.5% in China on Monday
Glencore announced that coal price discounts (selling price versus benchmark prices) had widened from 18% to 25%
Also flagged higher input costs (including diesel, explosives, logistics and energy) as well as higher royalty costs
Australian authorities invoke emergency powers to block coal exports to support domestic energy markets, according to the Financial Times
Queensland proposing increased royalties on coal producers
Queensland coal royalties have been frozen for a decade
State treasurer Cameron Dick said they are still working through the details
Even in the face of the above headwinds, coal supply remains tight in the near-term, which is probably why price pullbacks tend to be short-lived.
“Russia’s ~110 million tonnes of high CV seaborne coal (~29% of the global high CV seaborne market) could potentially be excluded from its traditional seaborne markets,” observed Whitehaven Coal in its March quarter report.
“Replacement sources for Russian high CV coal supply are not readily identifiable with increasing potential for coal prices to find new highs for longer.”
This week, several European countries have signalled plans to ramp up coal-fired power production due to Russian supply uncertainty.
On Monday, the Netherlands said it would remove all restrictions on fossil fuel power stations, which were previously limited to around a third of output.
Germany and Austria announced similar moves over the weekend as sanctions cut off all-important Russian energy imports.
S&P Global Platts warned that Newcastle thermal coal prices are expected to remain subdued in the second-half of June and into July due to discounts offered from Russia, luring Asian buyers away from Australian coal.
"Buyers in India, Thailand, Vietnam and South Korea were procuring Russian coal and these imports were expected to increase," S&P Global Platts reported.
Even then, Newcastle coal futures currently trade close to the US$400 a tonne mark, up 158% year-to-date and around 12% away from all-time highs.
Most ASX coal stocks are bouncing higher on Tuesday, up between 6% and 11%.
Note: Shortly after this article was published, the Queensland government introduced a progressive, three tier royalty for coal sales. This impacted coal miners including Stanmore, Terracom and Coronado. You can read more about it here.
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