China is about to accelerate coal production and these ASX small caps could benefit
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While the coronavirus has hit some commodities hard, this hasn’t been the case with coal.
Especially since the Asian behemoth just gave the green light to an extra 34 gigawatts of new coal power capacity at the end of February. This means China is going to need a whole lot more coal, and only some (not all) provinces are allowed to grant new coal permits without central government approval.
This policy is understood to have been in the works before the outbreak and is going ahead. More importantly, it is also a direct reversal to its moves in 2016 to clamp down on new coal plants being built.
On top of this, the anticipated stimulus package from the Chinese government is tipped to include cash for coal-fired power plants as well as infrastructure projects that are going to need a whole lot of steel.
And China is particularly fond of Australian coal because it is higher quality and produces less emissions — hence less pollution — than coal from other countries.
This is good news for ASX-listed coal stocks.
Here are all the ASX stocks with exposure and their performance in the past year, month and week:
Swipe or scroll to reveal the full table. Click headings to sort
Most stocks are in the red at the moment, although large cap Whitehaven Coal (ASX:WHC) is one exception — up over 10 per cent in the last week.
Whitehaven is Australia’s largest dedicated coal miner and while it does not export directly to China it often stresses the importance of Chinese demand as critical to the market.
In the last week, analysts including Jefferies’ Kaan Peker and Morgan Stanley’s Rahul Anand have tipped Whitehaven’s share price will rise from $1.85 currently to $2.90.
Meanwhile, Goldman Sachs expects to see improved coal prices and the weakening Australian dollar as key catalysts for increased supply.
There is also no shortage of small caps in the coal space with many of the companies operating in Australia having operations in the well known Bowen Basin in Queensland.
Some examples include Stanmore Coal (ASX:SMR) which is producing from the former Vale-owned Isaac Plains mine in the Bowen Basin that it picked up in 2015 for just $1, Bowen Coking Coal (ASX:BCB), Lustrum Minerals (ASX:LRM), Moreton Resources (ASX:MRV) and TerraCom (ASX:TER).
The latter is currently proceeding with a takeover of Universal Coal (ASX:UNV) and has already secured acceptances from shareholders holding about 87 per cent of UNV’s shares despite an independent expert engaged by Universal conluding that the offer was neither fair nor reasonable.
One risk affecting stocks is nation-wide lockdowns. Two of these stocks New Zealand based Bathurst Resources (ASX:BRL) and South African focused MC Mining (ASX:MCM) and both have fallen in the last week. Neither has revealed the extent to which their operations will be affected.