• Coal prices could stage a recovery in the back half of 2023 based on new forecasts from CBA
  • Thermal coal has fallen more than 50% after a milder than expected northern winter
  • But iron ore and coking coal prices are looking strong as China’s steelmakers return to profitability

Thermal coal prices have been less than stellar in 2023.

Or they’re still stellar by any measure unless referenced to 2022 prices.

Front month futures for 6000kcal Newcastle thermal coal were fetching US$191.50/t yesterday.

That is a far cry from the record of around US$457/t seen late last year and over 50% down on New Year’s Eve 2022.

The reasons have been varied, though more than anything a milder than expected northern winter helped cool the jets off the thoroughly overheated market.

European gas stores are restocked, leaving less demand for spot thermal sales into a market which was, before the war in Ukraine, largely supplied by Russia.

Will prices keep tumbling? Despite their still high levels there may be some concerns from New South Wales producers if they do.

Stung by harsh weather, costs have risen significantly and miners are facing the prospect of supplying around 5% of their production into the domestic market at just $125/t, well below international prices.

For BHP (ASX:BHP), owner of the Mt Arthur operation near Muswellbrook where conveyor belts to local power plants were pulled down a few years ago, that would be below the cost of production after inflationary pressures and weak output saw it lift cost guidance to US$84-91/t (up to $137/t Aussie) for FY23.

Whitehaven Coal (ASX:WHC) is down almost 25% year to date despite making almost $2 billion profit in the half year to December 31.

Yancoal (ASX:YAL) is down slightly, largely because it went ex-div yesterday, but New Hope Corporation (ASX:NHC) has fallen 10.22% and Coronado Global Resources (ASX:CRN), which is mainly a met coal producer, is off 8.32%.

Smaller capped Bowen Coal (ASX:BCB) and Terracom (ASX:TER) were two of the best performing miners on the ASX last year but are down 18% and 38% YTD respectively, with Stanmore (ASX:SMR), up more than 15%, an outlier.

Will thermal coal prices stay at these levels for the rest of the year or go lower?

 

Tracking LNG

Not according to the Commonwealth Bank, which updated its energy price assumptions yesterday.

While average thermal coal prices are expected to slip from US$255/t for the March quarter to US$190/t for the June quarter, a recovery is expected by September, with Newcastle grade energy coal forecast to average US$250/t.

Prices from December ’23 to ’24 are expected to remain solid at US$220/t, US$223/t, US$226/t, US$236/t and US$200/t, before a big drop across 2025 to US$91/t by December two years on from now.

“The fall in thermal coal prices, particularly for the high-energy variety, can be largely attributed to a drop in thermal coal import demand. Europe’s milder than usual winter has meant lower energy demand for the continent,” CBA’s mining and energy expert Vivek Dhar said, explaining the current situation.

“The surplus in Europe’s energy market can be seen by Europe’s gas storage levels being well above the historical average. A milder winter in Japan and South Korea hasn’t helped either.”

Supplies look like they are going to improve after two weather hit years, and the disruptions wrought by Covid as well as China’s export ban on Australian coal and social or political instability in supplying nations like South Africa and Colombia.

But Dhar says thermal coal prices will track LNG “for the foreseeable future”, with restocking demand in Japan and South Korea also expected to support prices.

The removal of Russia from many thermal markets supplied by Aussie producers means risk remains slanted to the upside, he suggested.

“The key upside risk to our outlook is the extent that Russian export supply is stranded. Russia is a key supplier of high-energy thermal coal and any structural reduction in Russian exports will provide a premium for Australian high-energy coal,” he said.

“The main downside risk to our forecast is fewer wet weather related disruptions with the La Nina weather pattern expected to end soon.

“We could see thermal coal export supply from Australia, Indonesia and Colombia pick up.

“The downside impact on thermal coal prices though will likely be contingent on temperatures remaining mild through the upcoming summer and winter season in the northern hemisphere.”

 

ASX coal stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
NAE New Age Exploration 0.005 -17% -29% -17% -55% $ 7,179,494.55
CKA Cokal Ltd 0.15 -3% -19% -35% -3% $ 172,631,836.80
NCZ New Century Resource 1.1 0% 29% -29% -43% $ 146,672,852.70
BCB Bowen Coal Limited 0.275 -2% 0% -28% -2% $ 524,593,186.11
SVG Savannah Goldfields 0.17 0% -8% -29% -26% $ 32,104,234.46
GRX Greenx Metals Ltd 0.675 -9% -6% 214% 238% $ 169,925,710.88
AKM Aspire Mining Ltd 0.058 2% -5% -39% -33% $ 30,965,856.09
AVM Advance Metals Ltd 0.008 -20% -20% -33% -47% $ 5,238,396.62
AHQ Allegiance Coal Ltd 0.013 0% -24% -85% -97% $ 13,063,647.08
YAL Yancoal Aust Ltd 5.7 -7% 1% -14% 11% $ 9,058,214,537.82
NHC New Hope Corporation 5.24 -7% -3% -5% 83% $ 4,870,127,513.04
TIG Tigers Realm Coal 0.012 -8% -8% -40% 20% $ 156,800,428.42
SMR Stanmore Resources 3.35 -5% -6% 46% 116% $ 3,190,926,384.36
WHC Whitehaven Coal 6.75 -8% -15% -20% 67% $ 6,340,367,907.93
BRL Bathurst Res Ltd. 0.97 -7% 7% 4% -5% $ 191,359,780.00
CRN Coronado Global Res 1.745 -8% -14% 16% 5% $ 3,025,998,982.65
JAL Jameson Resources 0.072 0% -11% -10% -10% $ 28,188,799.20
TER Terracom Ltd 0.555 -27% -29% -48% 29% $ 484,584,572.18
ATU Atrum Coal Ltd 0.005 -29% -17% -33% -57% $ 6,958,495.86
MCM Mc Mining Ltd 0.19 -10% -16% -54% 201% $ 75,559,501.91
DBI Dalrymple Bay 2.5 0% -1% 16% 23% $ 1,234,446,550.83
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Are there growth markets for thermal coal?

Thermal coals astonishing price run last year was a shock to many, though not to some in the market, especially private operators unburdened by ESG pressure from investors.

Many had gambled a lack of investment and regulatory support for expansions and new supply would lead to volatility and a period of higher prices.

But the longer term questions hovers over thermal coal producers, who unlike coking coal miners, sell into a market where there are at the very least theoretical alternatives to displace their product.

There are bright spots for thermal coal exporters. India is still reliant on thermal for 70-75% of its electricity, for instance.

Dhar says imports there are likely to lift in 2023 and subsequent years.

“Emerging Asian economies (excluding India)are also expected to increase thermal coal imports in coming years as a number of coal power plants are still under construction,” he added.

“The cancellation of proposed coal capacity from 2015 to 2021 suggests that the eventual peak in thermal coal imports from these economies will likely be lower and sooner than previously estimated.”

China will also be returning as a source of lower grade energy coal demand from Australia. While the premium 6000kcal is traded more to Taiwan, Japan and South Korea, China was a big buyer of 5500kcal coal before the unofficial coal ban started in late 2020.

With that situation being unwound thanks to thawing diplomatic ties between Australia and China, lower grade coal prices could receive a tad more support from international markets.

“Ship-tracking data shows that coal shipments (thermal and coking coal) from Australia to China have increased since late January. These developments have spurred hopes that China’s informal ban on Australian coal imports may be completely lifted in coming months,” Dhar said.

“China’s informal ban on Australian coal imports began in October 2020.It’s worth highlighting that China was a key buyer of Australia’s 5500kcal/kg coal before the ban took place.The prospect that China will restart purchases of Australian thermal coals hould help support Australia’s 5500kcal/kg coal price benchmark than otherwise.

“The extent to which that support will be strong or weak will largely depend on how strong China’s demand will be for Australian thermal coal.

“In 2019, China accounted for ~24% of Australia’s thermal coal (exports). Since China’s unofficial ban took effect, Australia’s thermal coal has found other buyers and trade flows have adjusted for quite some time. India, Japan, Europe and Vietnam have largely stepped up their purchases of Australia coal in China’s absence.”

China, however, is a big internal supplier, fulfilling up to 95% of domestic demand from local mines.

 

Met coal, iron ore prices remain strong in anticipation

While China’s bearish economic outlook put the cat among the pigeons for those predicting a china-led commodity rebound last week, iron ore prices and coking coal sales remain strong.

Coking coal futures were trading down ever so slightly at US$363.3/t, levels at which producers of high quality met coal like BHP would be making roughly three times their cost base.

Iron ore was also up 2.8% yesterday morning to US$132.35/t, close to year high levels.

It came after a reported drop in iron ore port inventories of 2% last week ahead of the strongest construction season in the Middle Kingdom over the next three months.

According to MySteel Australian shopping volumes dipped last week by 6.8% to 17.1Mt, with shipments to China down 4.3%. All up shipments from Australia and Brazil fell 325,000t or 1.3% to 24.3Mt.

The draw on port stockpiles comes amid strong profitability and demand from steel mills, with MySteel also reporting a 0.89 point rise in blast furnace utilisation to 88.03% from March 3-9.

On the flipside, Bloomberg reported last week Chinese authorities had moved to prevent traders from “hoarding” iron ore in a bid to cool prices.

Singapore prices were up slightly to US$131.65/t yesterday, though it did little to calm panicked investors, who tanked iron ore stocks along with the rest of the materials index sans gold on a dark Tuesday.

 

ASX iron ore stocks

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CODE COMPANY PRICE 1 WEEK RETURN % 1 MONTH RETURN % 6 MONTH RETURN % 1 YEAR RETURN % MARKET CAP
ACS Accent Resources NL 0.025 0% 0% -40% -55% $ 11,828,182.08
ADY Admiralty Resources. 0.006 0% -33% -45% -65% $ 7,821,474.92
AKO Akora Resources 0.14 -13% -15% -38% -63% $ 10,106,629.40
BCK Brockman Mining Ltd 0.026 0% 0% -7% -42% $ 241,286,035.41
BHP BHP Group Limited 45.03 -7% -6% 15% 6% $ 232,166,556,081.48
CIA Champion Iron Ltd 7.4 -7% 4% 35% 8% $ 3,909,980,032.56
CZR CZR Resources Ltd 0.17 -13% -21% -46% 46% $ 40,074,889.82
DRE Dreadnought Resources Ltd 0.067 -12% -29% -42% 68% $ 223,973,518.96
EFE Eastern Resources 0.012 -29% -33% -57% -74% $ 14,903,357.53
CUF Cufe Ltd 0.018 -10% 6% -10% -49% $ 17,390,022.57
FEX Fenix Resources Ltd 0.23 -10% -13% -13% -8% $ 137,278,051.20
FMG Fortescue Metals Grp 21.45 -3% -3% 18% 18% $ 66,998,276,615.68
FMS Flinders Mines Ltd 0.45 -3% -3% -31% -10% $ 76,826,102.54
GEN Genmin 0.19 -5% -5% -14% -10% $ 85,648,814.46
GRR Grange Resources. 0.81 -17% -22% 4% -19% $ 1,030,031,441.22
GWR GWR Group Ltd 0.085 37% 47% 0% -47% $ 28,909,498.95
HAV Havilah Resources 0.32 -9% -9% -9% 73% $ 104,490,939.30
HAW Hawthorn Resources 0.088 0% -7% -8% 4% $ 30,821,436.40
HIO Hawsons Iron Ltd 0.058 -15% -17% -88% -71% $ 57,901,476.72
IRD Iron Road Ltd 0.12 9% 14% -17% -33% $ 96,412,363.32
JNO Juno 0.09 13% -18% -22% -22% $ 12,209,220.09
LCY Legacy Iron Ore 0.018 0% 13% -10% -5% $ 115,322,871.58
MAG Magmatic Resrce Ltd 0.089 -5% -7% -39% -7% $ 27,206,659.02
MDX Mindax Limited 0.096 48% 63% 63% 63% $ 195,319,750.64
MGT Magnetite Mines 0.595 -5% -22% -58% -59% $ 47,778,071.67
MGU Magnum Mining & Exp 0.019 0% -17% -44% -76% $ 14,097,569.38
MGX Mount Gibson Iron 0.49 -14% -17% 7% -6% $ 619,353,859.83
MIN Mineral Resources. 79.83 -10% -12% 8% 72% $ 15,990,581,574.94
MIO Macarthur Minerals 0.13 0% -21% -19% -68% $ 22,363,220.88
PFE Panteraminerals 0.09 -18% -25% -18% -47% $ 4,635,100.80
PLG Pearlgullironlimited 0.042 11% 0% 55% -44% $ 6,569,482.00
RHI Red Hill Minerals 4.65 7% -1% 26% 33% $ 287,864,951.99
RIO Rio Tinto Limited 117.52 -6% -4% 21% 5% $ 43,974,272,710.44
RLC Reedy Lagoon Corp. 0.006 -25% -33% -63% -77% $ 4,533,756.81
CTN Catalina Resources 0.0055 -21% -45% -35% -69% $ 6,811,677.91
SRK Strike Resources 0.063 -14% -25% -40% -48% $ 19,011,250.00
SRN Surefire Rescs NL 0.018 20% 24% 13% 20% $ 28,464,542.59
TI1 Tombador Iron 0.025 4% 4% 4% -39% $ 47,013,612.21
TLM Talisman Mining 0.14 -3% -18% -13% -15% $ 28,160,924.55
VMS Venture Minerals 0.022 -8% -8% -19% -45% $ 38,867,567.02
EQN Equinoxresources 0.17 -8% -15% 3% -8% $ 8,550,000.19
AMD Arrow Minerals 0.006 20% 0% 50% 50% $ 17,449,863.29
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