Coal prices have bounded to new record highs on Russia’s invasion of Ukraine, extending the bonanza Australian based coal miners have enjoyed since the middle of last year.

The stunning turnaround in metallurgical and thermal coal prices has already seen previously troubled Australian producers make plans to virtually eliminate their hefty debts and return to paying dividends.

Even small coal miners, like Queensland and South African producer Terracom (ASX:TER), are setting themselves up for payouts as prices continue to rise.

Everything is tight. Even lower quality South African energy coal, long trading at a discount to Australian Newcastle 6000kcal thermal coal, surged three times from US$107.45/t FOB to US$391.45/t FOB between January 4 and March 2 according to S&P Global Platts.

It has since climbed even higher as European utilities look to replace some of the 40Mt Russia sends to Europe each year with Richards Bay prices up 8.9% yesterday to US$456/t, against Aussie thermal prices of US$422.65/t.

The rapid and dramatic redirection of coal flows has driven premiums for met coal products previously viewed as inferior in normal times.

The AFR reported yesterday that PCI prices (pulverised coal for injection), which typically trades at large discounts to premium hard coking coal (currently fetching an unheard of US$580/t itself) had reversed the natural order.

That’s because Russia is a big supplier of the product to European steel mills as well as India.

That’s good timing for Indonesia backed Australia-listed coal miner Stanmore (ASX:SMR), which is set to clear its purchase of BHP’s US$1.2 billion share in the South Walker Creek and Poitrel mines in Queensland (the BHP-Mitsui JV).

Those were on the market as BHP looked to divest its ‘lower quality’ coking coal and thermal coal assets as part of a shift to green metals.

The Big Australian is convinced coking coal will be needed in steelmaking for decades to come and is keeping hold of the BHP-Mitsubishi Alliance (BMA) mines, which sell the premium hard coking coal product seen as the Australian benchmark.

Ironically its prices, while historically out of this goddamn world, are now lower than the BMC assets it’s hiving off.

 

 

Coal miners share price today:

 

 

 

Forecasts already blown out of the water

Forecasts released less than a month ago have already been blown to smithereens, showing just how fast a boycott against Russia from Western companies and the impact of financial sanctions has caused a squeeze.

The highest price for 2022 PCI price quoted by KPMG forecast contributors in a February 16 release was US$229/t, with an average of US$165.20/t.

Hard coking coal boasted a high prediction of US$300/t and average of US$219.70/t.

No one could have predicted thermal coal price moves either, with an average forecast of US$130.50/t (high of US$176/t), despite prices already spiking in January thanks to an Indonesian export ban.

In under a fortnight they would be fetching over US$400/t. It all could get worse. On top of the Russia squeeze, the threat of renewed export bans in Indonesia later this year is also hovering.

It hasn’t been great news for everyone.

US-based coal producer Peabody Energy, which owns a network of mines in Queensland and New South Wales, has found itself needing US$534 million for a margin call after finding hedges it took on to keep its Wambo underground mine in New South Wales profitable more than US$300/t out of the money.

Peabody is enjoying the benefit of record coal prices at its other Australian mines, turning from a US$1.87 billion net loss in 2020 to a US$360.1m profit in 2021.

But with 1.9Mt of coal from Wambo hedged at US$84/t in 2022 and part of 2023, the price of derivative contracts to back the hedge exploded as prices for Newcastle index thermal coal went from US$169.17/t to a record US$419.50/t between the end of 2021 and Friday.

Goldman Sachs will tip in US$150m in an unsecured credit facility to help with Peabody’s liquidity issues.

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.012 -8% -29% 9% 9% $ 17,230,786.92
CKA Cokal Ltd 0.155 0% -9% -14% 128% $ 150,231,836.80
NCZ New Century Resource 1.96 3% -3% -23% -23% $ 264,601,240.26
BCB Bowen Coal Limited 0.285 19% 19% 63% 461% $ 471,269,735.12
LNY Laneway Res Ltd 0.006 9% -14% 50% 20% $ 28,359,065.60
GRX Greenx Metals Ltd 0.2 11% -9% -28% -8% $ 50,724,092.80
AKM Aspire Mining Ltd 0.087 6% 4% 2% -8% $ 40,610,958.80
PAK Pacific American Hld 0.016 0% -11% -14% -18% $ 7,646,038.43
AHQ Allegiance Coal Ltd 0.5 3% -6% -21% 25% $ 208,553,774.90
YAL Yancoal Aust Ltd 4.95 24% 68% 108% 102% $ 6,707,832,339.96
NHC New Hope Corporation 2.91 9% 18% 28% 122% $ 2,480,424,104.36
TIG Tigers Realm Coal 0.01 -38% -47% -38% 43% $ 130,667,023.68
SMR Stanmore Resources 1.73 58% 56% 128% 195% $ 523,238,406.08
WHC Whitehaven Coal 4.07 20% 40% 40% 139% $ 4,316,452,889.76
BRL Bathurst Res Ltd. 1.005 27% 30% 46% 145% $ 178,644,446.04
CRN Coronado Global Res 1.975 16% 35% 61% 97% $ 3,453,494,683.80
JAL Jameson Resources 0.073 7% -3% -14% -27% $ 25,418,841.78
TER Terracom Ltd 0.43 23% 79% 169% 431% $ 331,587,357.20
ATU Atrum Coal Ltd 0.015 -35% -40% -63% -94% $ 11,753,261.71
MCM Mc Mining Ltd 0.09 6% -8% -28% -28% $ 12,816,823.07

 

China releases growth forecast as iron ore climbs

Last year’s boom commodity iron ore has been relatively dull by comparison.

An early year price run saw China, the market that matters in setting iron ore prices thanks to its 60% share of the global steel market, intervene to get them under control.

While not as dramatic as price runs in commodity markets where Russia is a major exporter like oil, coal, palladium and nickel, which broke the LME as prices more than doubled their all time high to US$100,000/t, iron ore did hit its year long high at more than US$160/t on Monday.

The turnaround in iron ore prices, along with the strength of the coal price, has been good for Australian companies.

According to the January trade figures released by the ABS last week a mini iron ore and coal price boom to start 2022 added $3.14 billion in export earnings for the Aussie economy.

That propelled Australia’s trade surplus from $8.8b in December to $12.9b in January, just $400m short of the record high of $13.3b in July, a period impacted by record iron ore prices and lower imports due to Covid.

WestpacIQ’s Andrew Hanlan said the second wind provided to commodities from the Russia-Ukraine conflict would keep Australia’s export earnings high.

“Looking ahead, with the second wind for commodity prices, Australia is set to record sizeable trade surpluses over the months ahead,” he said. “Russia’s invasion of Ukraine has provided a further boost to a number of commodity prices.”

 

Will iron ore prices hold?

Iron ore prices have been impacted by the conflict indirectly and directly.

Ukraine and Russia are smalltime producers when it comes to the broader iron ore market, which is dominated by Australia and Brazil followed by South Africa and Canada.

But Ukraine in particular is a major producer of high grade iron ore pellets, with local companies such as Ferrexpo calling Force Majeure as the war unfolded.

Longer term iron ore prices will always be driven by Chinese economic growth, with the Middle Kingdom unveiling its 2022 roadmap at the ongoing National People’s Congress.

China has dropped its GDP growth target from at least 6% for 2021 to around 5.5% for 2022, its lowest level in deceades.

“That is an unusually-large step down but the target is still optimistic,” Capital Economics senior China economist Julian Evans-Pritchard said.

“And it will almost certainly be met on paper – we expect published GDP growth of 5.3% for 2022 as a whole.”

That may seem negative, the growth target has retreated progressively from 8% in 2008.

China will also not change its Covid-zero policy for managing the virus, raising the possibility of more lockdowns.

But it has suggested it plans to put more funding into infrastructure, will significantly boost defence spending and fiscal policy will ease with Evans-Pritchard saying China will likely take a greater state role in the country’s struggling housing market “at the expense of private developers”.

Importantly for the iron ore and steel market, China looks like its eased its rhetoric around environmental goals, used as the rationale for shutting down steel mill capacity in the second half of 2021, a move that led to a rapid decline in iron ore prices.

Reuters columnist Clyde Russell said despite the lower growth target, the Chinese Government’s focus on economic stability would be positive for steel demand.

“Iron ore imports have held up in the first two months of 2022 despite restrictions on steel output as the authorities in Beijing sought to limit pollution over winter and during the Winter Olympic Games in the city,” he said.

“Now that these restrictions are ending and stimulus measures are starting to flow into China’s economy, it’s likely that steel demand will rise, thus lifting iron ore imports in coming months.

“Overall, the domestic backdrop looks constructive for iron ore despite the lower economic growth target, given that the likely composition of China’s growth will be steel-intensive.”

Russell said prices were unlikely to rally back to the record level of over US$230/t they hit in May 2021, but had room to rise from the ~US$153/t high mark set until yesterday’s price increase.

CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.056 0% 0% 6% -41% $ 26,097,527.85
ADY Admiralty Resources. 0.017 6% 6% 6% -6% $ 22,160,845.60
AKO Akora Resources 0.37 17% -3% 76% -5% $ 19,541,217.74
BCK Brockman Mining Ltd 0.05 -4% -22% -9% 43% $ 463,961,606.55
BHP BHP Group Limited 48.53 4% -1% 17% -2% $ 255,039,842,312.20
CIA Champion Iron Ltd 6.42 -3% -8% 17% 9% $ 3,523,292,994.32
CZR CZR Resources Ltd 0.007 -7% -13% 0% -42% $ 26,147,424.58
DRE Dreadnought Resources Ltd 0.039 3% -7% 3% 144% $ 110,708,658.49
EFE Eastern Resources 0.046 -12% -25% 64% 393% $ 47,433,048.29
CUF Cufe Ltd 0.035 6% -17% -50% -19% $ 33,113,932.78
FEX Fenix Resources Ltd 0.235 0% -11% -15% -2% $ 118,020,271.20
FMG Fortescue Metals Grp 18.66 5% -16% 4% -16% $ 60,162,974,497.72
FMS Flinders Mines Ltd 0.455 -5% -13% -45% -71% $ 75,981,859.65
GEN Genmin 0.17 -15% -23% -19% 0% $ 53,634,691.50
GRR Grange Resources. 1.11 10% 28% 127% 131% $ 1,336,726,196.19
GWR GWR Group Ltd 0.16 3% -3% -14% -36% $ 49,788,581.53
HAV Havilah Resources 0.175 0% -10% -13% -17% $ 55,765,216.26
HAW Hawthorn Resources 0.086 -2% -4% 79% 21% $ 30,683,436.40
HIO Hawsons Iron Ltd 0.175 3% -22% 116% 409% $ 135,860,060.50
IRD Iron Road Ltd 0.185 3% -3% -8% -34% $ 147,168,992.03
JNO Juno 0.115 28% -8% -34% 0% $ 15,600,670.12
LCY Legacy Iron Ore 0.02 5% 5% 18% 43% $ 128,136,523.98
MAG Magmatic Resrce Ltd 0.1 -23% 10% -13% -29% $ 29,902,198.77
MDX Mindax Limited 0.059 0% 37% 37% 1867% $ 112,672,163.12
MGT Magnetite Mines 0.031 0% -21% -3% 3% $ 100,983,900.19
MGU Magnum Mining & Exp 0.078 18% -1% -9% -32% $ 42,257,317.69
MGX Mount Gibson Iron 0.505 -6% 11% -1% -43% $ 659,759,577.99
MIN Mineral Resources. 45.91 1% -21% -11% 19% $ 9,070,475,634.33
MIO Macarthur Minerals 0.385 -3% 12% -23% -34% $ 56,115,092.88
PFE Panteraminerals 0.165 0% -21% -54% 0% $ 7,755,000.00
PLG Pearlgullironlimited 0.078 20% 20% 0% 0% $ 4,282,380.02
RHI Red Hill Iron 3.53 -6% 19% 17% 1041% $ 234,887,588.32
RIO Rio Tinto Limited 120.51 2% 3% 11% 0% $ 46,765,818,639.72
RLC Reedy Lagoon Corp. 0.026 0% -19% 4% 8% $ 13,696,430.75
SHH Shree Minerals Ltd 0.015 -25% -38% 25% 15% $ 18,075,027.16
SRK Strike Resources 0.12 -4% -8% -25% -31% $ 35,100,000.00
SRN Surefire Rescs NL 0.013 0% -7% -24% -46% $ 14,665,532.82
TI1 Tombador Iron 0.041 5% -7% -13% -40% $ 45,835,963.86
TLM Talisman Mining 0.17 0% -3% 6% 79% $ 31,915,714.49
VMS Venture Minerals 0.039 3% -11% -56% -24% $ 65,128,346.09
EQN Equinoxresources 0.2 5% -9% 0% 0% $ 9,000,000.20