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Bulk Buys: Get your umbrellas – price forecasts suggest coal profits could pour for a while yet
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Analysts tipping a major correction in the coal price by the end of 2022 have changed their tune after Russia’s war with Ukraine blew up the market.
Prices have confounded belief, with tightness in the seaborne segment of the coal market bounding to record levels of over US$600/t in most segments of Australian market.
Last week prices for premium Australian coking coal hit records of US$645/t, with Fastmarkets reporting some Australian cargoes for April laycans being bidded at US$670/t, around 10 times prices being paid to then struggling coal miners during the early stages of the pandemic.
Hard coking coal is fetching US$615/t, with semi soft trading at US$568/t and PCI coal, typically a discounted product, pushing premium low vol at US$644/t.
Aussie bank Westpac’s June 2022 averages are eye-catching but not unexpected.
It sees hard coking coal averaging US$563/t, and low vol premium coking coal, the benchmark produced by BHP (ASX:BHP) at its BMA JV with Mitsubishi, buying US$590/t.
But it’s the late 2022 and longer-term projections that are really startling.
The big four bank has premium and hard coking coal still averaging over US$400/t by December, a time when most analysts previously expected supply to catch up before ructions like Russia’s invasion of Ukraine and Indonesia’s export ban.
Wowee.
By the end of 2025, Westpac still has premium hard coking coal buying US$203/t and hard coking coal at US$189/t, though those are slightly off the forecasts the bank provided in February.
Barring the effects of inflation and potential mismanagement, prices like those would see miners making significant margins for a long time to come.
Thermal coal prices at could top US$500/t: Rystad
European energy analysts Rystad say Russia’s rising share of the European coal market in recent years could cause global thermal coal prices top US$500/t this year.
The drop in coal demand has, ironically, enhanced Russia’s power in the market.
Russia isn’t selling any more coal to Europe than it was a decade ago as countries have tried to shift to cleaner fuels like gas and renewables.
According to Eurostat the 36Mt it supplies to EU member states is no more than it did a decade ago. But as countries like Germany have shut their coal industries down, Russia’s role as a supplier has grown from 35% to 70% of the EU market.
Rystad VP of Coal Steve Hulton said there are few sources that can replace Russian supply, causing ripples across the market, with Austrade reportedly recently lobbying fully-contracted Australian miners to supply to countries such as Poland.
“There is simply an almost complete absence of surplus thermal coal available globally. Prices have shot past $400 and the $500 per tonne mark seems to be in play,” he said.
S&P Global Platts said last week market participants expect prices to remain strong with some Australian cargoes headed to Europe after Indian buyers thumbed their noses at the prices.
But demand is coming from literally everywhere right now.
“There has to be some reason for prices to soften. From here, I only see a bullish price run because demand is coming from all the quarters and supply is tight,” an Indonesia-based trader told S&P.
Australian energy coal has been priced at over US$400/t in recent weeks before a recent pullback to ~US$360/t.
But prices are likely to remain high. Poland is Europe’s largest producer but is reliant on Russia for supplies of high energy thermal coal which is cheaper to produce and buy than tonnes from its deep underground mines.
Colombian and South African coal production also remain well below historic levels, with South African rail operator Transnet dealing with persistent theft of copper cable along its train lines.
Rystad said South Africa could ramp up production from under 60Mt last year to 70-75Mt if it can sort out security issues.
Rystad says American miners ramped up exports by 30% last year to 36Mt, but most of that is accounted for, with only 5Mt available for the European market after Asian buyers had their slice of pizza.
A lack of investment in new mines will also crimp its ability to increase exports with US power stations also in need of supply.
ASX coal stocks
Scroll or swipe to reveal table. Click headings to sort.
| CODE | COMPANY | PRICE | 1 WEEK RETURN % | 1 MONTH RETURN % | 6 MONTH RETURN % | 1 YEAR RETURN % | MARKET CAP |
|---|---|---|---|---|---|---|---|
| NAE | New Age Exploration | 0.012 | 0% | -20% | 0% | -8% | $ 17,230,786.92 |
| CKA | Cokal Ltd | 0.165 | 6% | 0% | -6% | 150% | $ 154,926,581.70 |
| NCZ | New Century Resource | 1.935 | -1% | 2% | -24% | -24% | $ 256,086,843.92 |
| BCB | Bowen Coal Limited | 0.25 | -12% | 9% | 56% | 383% | $ 418,061,861.80 |
| LNY | Laneway Res Ltd | 0.006 | 0% | -14% | 20% | 0% | $ 28,359,065.60 |
| GRX | Greenx Metals Ltd | 0.195 | -3% | 3% | -34% | -11% | $ 49,455,990.48 |
| AKM | Aspire Mining Ltd | 0.089 | 2% | 11% | 6% | -6% | $ 45,687,328.65 |
| PAK | Pacific American Hld | 0.015 | -6% | -17% | -17% | -33% | $ 7,168,161.03 |
| AHQ | Allegiance Coal Ltd | 0.5 | 0% | -7% | -17% | 16% | $ 202,706,472.80 |
| YAL | Yancoal Aust Ltd | 4.19 | -15% | 30% | 62% | 78% | $ 6,866,285,072.40 |
| NHC | New Hope Corporation | 2.8 | -4% | 13% | 26% | 110% | $ 2,463,776,962.72 |
| TIG | Tigers Realm Coal | 0.01 | 0% | -44% | -41% | 43% | $ 143,733,726.05 |
| SMR | Stanmore Resources | 1.43 | -17% | 32% | 67% | 105% | $ 500,253,773.25 |
| WHC | Whitehaven Coal | 4.02 | -1% | 32% | 33% | 150% | $ 4,254,494,235.84 |
| BRL | Bathurst Res Ltd. | 0.95 | -5% | 21% | 17% | 121% | $ 169,242,106.77 |
| CRN | Coronado Global Res | 1.885 | -5% | 29% | 44% | 82% | $ 3,352,907,460.00 |
| JAL | Jameson Resources | 0.08 | 10% | 7% | 0% | -20% | $ 27,856,264.96 |
| TER | Terracom Ltd | 0.415 | -3% | 36% | 152% | 383% | $ 335,355,395.35 |
| ATU | Atrum Coal Ltd | 0.013 | -13% | -46% | -67% | -94% | $ 9,679,156.70 |
| MCM | Mc Mining Ltd | 0.079 | -12% | -2% | -37% | -37% | $ 12,816,823.07 |
Speaking of America
Allegiance Coal (ASX:AHQ) released its half-year results late last week, saying it plans to hit a 1Mt sales run rate by June 30.
The ASX-listed US focused coal miner has been working on the ramp up of its New Elk and Black Warrior mines over the past year, making $13m in revenue on 91,000t of coal sales with a loss of $27m before interest and depreciation in the six months to December 31.
But it is the next year ahead which will be more telling for Allegiance, with 415,000t of sales and US$90 million in revenue expected across the second half of the financial year.
Of that, 325,000t is already committed for US$57m of coal contracted for delivery.
Pricing is also expected to improve, and not just because of the situation in Ukraine.
Allegiance expects to see premium high-vol A index pricing for its Black Warrior cargoes from the June quarter after clearing its coke quality tests. The remainder of “locked in” pricing for the New Elk mine in Colorado will wrap up in the first quarter of FY23.
The company’s chairman and CEO Mark Gray, who will welcome new CEO Jon Romcke in May, said AHQ will be able to now enjoy the strength in the current coal market.
“We are currently expecting 415k tonnes of coal sales in H2’FY22 (of which 325k tonnes is already contracted for delivery) compared to 91k tonnes in H1’FY22, generating an estimated US$90M in revenue compared to US$9.8M in H1’FY22,” he said.
“Q3’FY22 revenue is still at discounted prices as those contracts were negotiated late 2021 prior to the completion of Black Warrior’s successful coke oven tests.
“We expect to get, and are currently negotiating, high-vol A index pricing for Black Warrior cargos in Q4’FY22 and thereafter and at New Elk index pricing shortly follows in Q1’FY23.
“As the business has a largely fixed cost base, we expect the growth in revenue generation to have a marked impact on the company’s reported earnings in H2’FY22.”
Allegiance Coal share price today:
Steel production and Covid hit iron ore miners
While coal prices continue to hover around record levels, more uncertainty surrounds high iron ore prices.
Prices for benchmark 62% iron ore fines tumbled around 10% to US$145.50/t on Monday after China put two major cities, including the tech capital of Shenzhen, into lockdown in response to new Covid cases.
Yesterday China’s steel output for February was also released, with February and January steel production falling 10% year on year to 158Mt.
China’s steel output is generally the strongest indicator of iron ore demand. In the first half of last year, as prices soared to record highs that topped US$230/t in May, China was producing at an annual rate of almost 1.2Bt.
That slowed in the second half of the year as the Communist Party ordered a number of mills to shut to reduce emissions and keep steel output lower than the record 1.065Bt produced in 2020.
The 2.68Mt/day production rate in January and February was about 3.7% down on production from China’s steel factories in December last year.
But it was not unexpected, given China was keeping a tight grip on pollution during the Beijing Winter Olympics and Paralympics, which wrapped up on Sunday.
According to Chinese consultancy MySteel, around 79.78% of blast furnace capacity was in use between March 4-10. When prices were at their highest last year as much as 95% of that capacity was switched on.
Looking forward, investors in the iron ore miners were spooked yesterday after a big drop in prices prompted by the strictest lockdowns in China since the initial Wuhan coronavirus outbreak in 2020.
Prices had been rising steadily after Ukraine’s high grade pellet sales were severed from the market and China’s economic growth forecasts painted a bright picture for infrastructure and property demand.
Monday’s lockdowns cut off that upside for admittedly high iron ore prices, which had risen to as much as US$162/t last week.
BHP fell 4.2% to $45.36 yesterday, with Fortescue (ASX:FMG) sliding 4.93% to $17.15 and Rio Tinto (ASX:RIO) off 3.93% to $106.75.
The response of the mid-tiers, who can be more vulnerable to price moves due to their higher cost base, was even starker.
Canadian producer Champion Iron (ASX:CIA) was down 9.36%, with big losses also for MinRes (ASX:MIN), Mount Gibson Iron (ASX:MGX) and Grange Resources (ASX:GRR).
ASX iron ore stocks
Scroll or swipe to reveal table. Click headings to sort.
| 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% | 4% | -41% | $ 26,097,527.85 |
| ADY | Admiralty Resources. | 0.019 | 12% | 6% | 6% | -5% | $ 20,857,266.45 |
| AKO | Akora Resources | 0.35 | -5% | -4% | 63% | -5% | $ 18,749,006.21 |
| BCK | Brockman Mining Ltd | 0.045 | -10% | -25% | -6% | 29% | $ 417,565,445.90 |
| BHP | BHP Group Limited | 45.37 | -7% | -6% | 13% | -5% | $ 239,751,626,278.40 |
| CIA | Champion Iron Ltd | 6.39 | 0% | -6% | 17% | 4% | $ 3,642,113,725.80 |
| CZR | CZR Resources Ltd | 0.007 | 0% | -13% | -22% | -44% | $ 24,404,262.94 |
| DRE | Dreadnought Resources Ltd | 0.039 | 0% | 0% | -3% | 129% | $ 110,708,658.49 |
| EFE | Eastern Resources | 0.046 | 0% | -15% | 48% | 348% | $ 47,433,048.29 |
| CUF | Cufe Ltd | 0.035 | 0% | -10% | -44% | -19% | $ 32,167,820.41 |
| FEX | Fenix Resources Ltd | 0.23 | -2% | 0% | -29% | 0% | $ 126,472,410.40 |
| FMG | Fortescue Metals Grp | 17.15 | -8% | -21% | -4% | -16% | $ 55,544,527,120.72 |
| FMS | Flinders Mines Ltd | 0.48 | 5% | -7% | -42% | -64% | $ 75,981,859.65 |
| GEN | Genmin | 0.205 | 21% | 0% | -2% | -31% | $ 57,869,009.25 |
| GRR | Grange Resources. | 0.945 | -15% | 20% | 106% | 116% | $ 1,168,912,084.98 |
| GWR | GWR Group Ltd | 0.15 | -9% | -9% | -9% | -40% | $ 51,394,664.80 |
| HAV | Havilah Resources | 0.175 | 0% | 0% | -15% | -17% | $ 55,765,216.26 |
| HAW | Hawthorn Resources | 0.082 | -5% | -9% | 64% | 5% | $ 28,348,827.11 |
| HIO | Hawsons Iron Ltd | 0.18 | 3% | -3% | 94% | 382% | $ 132,284,795.75 |
| IRD | Iron Road Ltd | 0.175 | -5% | -5% | -8% | -36% | $ 143,191,451.70 |
| JNO | Juno | 0.1 | -13% | -13% | -44% | 0% | $ 15,600,670.12 |
| LCY | Legacy Iron Ore | 0.019 | 0% | 0% | 27% | 27% | $ 121,729,697.78 |
| MAG | Magmatic Resrce Ltd | 0.095 | -5% | -3% | -10% | -14% | $ 23,667,272.21 |
| MDX | Mindax Limited | 0.059 | 0% | 37% | -9% | 1867% | $ 112,672,163.12 |
| MGT | Magnetite Mines | 0.028 | -10% | -18% | -3% | -3% | $ 91,516,659.55 |
| MGU | Magnum Mining & Exp | 0.078 | 0% | 7% | -4% | -29% | $ 41,760,172.78 |
| MGX | Mount Gibson Iron | 0.49 | -3% | -6% | 5% | -46% | $ 629,495,377.16 |
| MIN | Mineral Resources. | 44.53 | -3% | -8% | -15% | 13% | $ 8,841,966,879.02 |
| MIO | Macarthur Minerals | 0.41 | 6% | 11% | -29% | -23% | $ 59,758,930.08 |
| PFE | Panteraminerals | 0.17 | 3% | -13% | -54% | 0% | $ 7,990,000.00 |
| PLG | Pearlgullironlimited | 0.083 | 6% | 26% | 0% | 0% | $ 4,721,598.49 |
| RHI | Red Hill Iron | 3.5 | -1% | -7% | 11% | 1032% | $ 229,781,336.40 |
| RIO | Rio Tinto Limited | 106.75 | -11% | -10% | 2% | -6% | $ 41,249,545,699.68 |
| RLC | Reedy Lagoon Corp. | 0.025 | -4% | -11% | -7% | -4% | $ 14,257,287.98 |
| SHH | Shree Minerals Ltd | 0.02 | 33% | 11% | 67% | 43% | $ 21,264,737.84 |
| SRK | Strike Resources | 0.12 | 0% | 4% | -17% | -41% | $ 35,100,000.00 |
| SRN | Surefire Rescs NL | 0.013 | 0% | -13% | -13% | -54% | $ 15,793,650.73 |
| TI1 | Tombador Iron | 0.038 | -7% | 0% | -5% | -50% | $ 44,718,013.52 |
| TLM | Talisman Mining | 0.165 | -3% | -3% | 0% | 70% | $ 30,977,017.01 |
| VMS | Venture Minerals | 0.037 | -5% | -8% | -55% | -34% | $ 65,128,346.09 |
| EQN | Equinoxresources | 0.185 | -8% | -12% | 0% | 0% | $ 8,325,000.19 |
Strike starts development at Paulsens East
Prices remain high enough to provide a bit of confidence for juniors to enter the market.
Strike Resources (ASX:SRK) will deliver the first new iron ore mine of 2022, after announcing the start of development of its Paulsens East iron ore mine on Monday.
It’s going to be a quick job. An 18km haul road to connect the mine to public Nanutarra Road has begun and is expected to take around 10-12 weeks to construct.
Mining to build lump stockpiles will begin in four weeks. At current iron ore prices the project is very attractive, even with the first 400,000t to be shipped through the Utah Point facility at Port Hedland this year, a 600km haulage route.
Longer term Strike, which also operates the Apurimac mine in Peru, expects to export up to 2Mtpa through the Port of Ashburton near Onslow, around 235km from its Paulsens East site.
The mine is expected to operate on current reserves for 3.5 years, at average C1 cash costs of US$60/t for the life of mine and US$87/t including cost, insurance and freight to China according to a feasibility study released last year.
“We are delighted to have now mobilised to site to start construction at Paulsens East,” Strike managing director William Johnson said on Monday.
“This is a very exciting time for the company as development towards first ore on ship is now underway. With iron ore prices continuing to strengthen, the timing could not be better to bring the Pilbara’s next iron ore mine into production.”
Strike Resources share price today:
At Stockhead, we tell it like it is. While Strike Resources and Allegiance Coal are Stockhead advertisers, it did not sponsor this article.
