Coal

ASX coal stocks shake off a flurry of negative catalysts: Whitehaven and New Hope up 7%

Tue 21 Jun 22, 1:30pm (AEST)
Coal 6
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Key Points

  • Several ASX-listed coal stocks fell more than -9% on Monday
  • Weakness in energy stocks and commodity prices, coal price discounts and a potential export block weighed
  • Coal fundamentals remain sound as Europe ramps up coal-fired power to replace Russian oil and gas

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.

Whitehaven, Coronado and New Hope charts
Whitehaven, Coronado and New Hope charts (Source: TradingView)

A reason to sell

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 

Coal markets remain as tight as ever

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. 

Asian markets turn to Russia

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.

Newcastle coal futures
Newcastle coal futures (Source: TradingView)

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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Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University and was Vice President of the University Network for Investing and Trading (UNIT). He is an avid swing trader, and drawn to breakouts and technical set ups. Outside of writing and trading, Kerry is a huge UFC fan, loves poker and bouldering.

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