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Mining
243 days.
That is how long the highest grade of Australian thermal coal spent at a premium to metallurgical coal for steelmaking, unravelling nearly every form of conventional wisdom we hold around the coal market.
Since June 1, 2022, high calorific value Newcastle 6000kcal product was more expensive than coking coal, creating an unusual arbitrage for producers with coal grades that could trade in both markets.
On August 1 that gap hit a never before seen level of US$202 per tonne.
This wasn’t supposed to happen. Coal burned for energy is facing long-term, existential pressure from Net Zero targets and the growth of renewables.
Steelmaking coal will remain sought after for decades because you can’t make the essential construction material without it.
BHP (ASX:BHP) trotted out that argument to explain why its high quality Queensland met coal mines remain core cogs of its portfolio, even as energy coal and lower grade steelmaking coal mines found themselves on the world’s biggest miner’s auction block amid its shift to “future facing commodities”.
Last year, as China and the world’s steel mills fell prey to recession fears and Covid-19, and Russia’s invasion of Ukraine exacerbated an energy shortage prompted initially by supply issues across the world, that world view tipped on its head.
On Monday that finally ended, with front month TSI premium hard coking coal futures running to US$316.15/t after a strong start to 2023.
Newcastle thermal coal front month futures, at one point last year paying over US$450/t, fell over 25% in one session to US$266/t.
Are we back to a new normal, or are there more twists coming in 2023?
Thermal coal prices surged last year and in the latter half of 2021, generating ungodly profits for companies producing the commodity.
While metallurgical coal prices ran even higher, spiking to ~US$670/t in the wake of Russia’s invasion of Ukraine early last year, it was gas-starved energy markets that had more legs.
But a milder than expected northern hemisphere winter has slowed the momentum of the energy coal market somewhat.
“This period of weakness that we have seen over the past few weeks, there’s a few drivers there, most significantly is the situation in Europe,” London Stock Exchange Group lead of coal market research Toby Hassall told Stockhead.
“The uplift in coal consumption in Europe over the past year as a result of lower Russian gas flows, and also nuclear retirements, that incremental demand from Europe was a big driver of the high prices we saw.
“Of course sanctions played a significant role as well.
“Now in Europe, we’ve got a situation where it’s been a relatively mild winter, also … despite the reduction in Russian gas flows into Europe, we’ve got a situation where gas inventories there are at very healthy, ample levels so we’ve seen the gas price come off.”
At the same time sentiment in the steel market has improved since China’s recovery from its Covid lockdown-infected economy began in November, with the potential reopening of met coal trade between Australia and China after an unofficial ban lasting more than two years also improving sentiment for Australian met coal.
Not only have premium hard coking coal prices ticked up, but so have lower grades like PCI. PCI and semi-soft coking coal are known for their switchability between thermal and steel markets.
While companies like Coronado (ASX:CRN) diverted transitional coal sales into European energy markets in late 2022, Hassall said the end of the arbitrage would likely see that situation reverse.
“I would expect as this very unusual premium for thermal closes and if we revert to a more typical situation where met coal prices are trading at a higher level than thermal, then we will see less of that opportunistic switching,” Hassall said.
The other aspect which has driven both thermal coal and met coal prices higher is a pale supply outlook, with wet weather, Covid and labour shortages in Australia combining with the Russian situation, and issues like political and social unrest in Colombia and South Africa to reduce the amount of product available on the seaborne trade.
While high prices saw export values from the Port of Newcastle rise almost 120% to $61.4 billion in 2022, volumes slipped 13% to 136Mt on an already Covid and weather affected 2021.
Although a wet January in Mackay has caused export problems for met coal miners shipping out of Dalrymple Bay, steam coal producers have seen fewer production roadblocks in recent months.
“We’re still in a situation where exports from the key exporting nations are below the levels that we saw prior to the pandemic, so the market is structurally not well supplied and there’s a few reasons behind that,” Hassall cautioned.
“But just in terms of weather impacts in Australia, we haven’t seen anything particularly significant (in the past couple months).
“Colombian exports have recovered after some issues there with protests blocking rail lines last year, South Africa continues to have logistics constraints, but they haven’t worsened.
“So we’ve got a situation where some of the heat has come out as a result of softening demand. We’re also heading into I guess, what we would call a shoulder season for coal demand globally as we progress through the winter and we come into the northern hemisphere spring.”
Australian thermal coal prices have also been trading at a major premium to the South African API4 index in recent weeks.
Longer term, however, coal miners have still been reticent to invest in new supply despite high prices.
“I think looking over the medium and longer term, it will be a case of if we think about the likelihood that global demand will level off and then start to decline, the outlook for prices will really depend upon the supply profile, because we’ll have mines reaching the end of their lives,” Hassall said.
“We’ve actually got two Glencore mines in Australia that are scheduled to be shut this year.”
Another spectre is government intervention in the coal market, with BHP over the weekend warning of the potential early closure of its Mt Arthur mine in New South Wales after the NSW Government moved to sequester up to 10% of domestic production for local power generators at a $125/t cap, prices below BHP’s flagged cost of production.
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 | 0.008 | 0% | 14% | 14% | -43% | $ 11,487,191.28 |
| CKA | Cokal Ltd | 0.2 | -5% | -7% | 18% | 29% | $ 192,997,040.90 |
| NCZ | New Century Resource | 0.935 | 11% | 10% | -46% | -56% | $ 138,894,081.69 |
| BCB | Bowen Coal Limited | 0.29 | -5% | -12% | -6% | 76% | $ 559,631,338.03 |
| SVG | Savannah Goldfields | 0.19 | 19% | 0% | -5% | -17% | $ 31,067,718.84 |
| GRX | Greenx Metals Ltd | 0.75 | 0% | 17% | 194% | 241% | $ 185,142,938.72 |
| AKM | Aspire Mining Ltd | 0.065 | -2% | -7% | -28% | -24% | $ 34,011,678.00 |
| AVM | Advance Metals Ltd | 0.011 | -8% | 10% | 10% | -39% | $ 6,960,528.83 |
| AHQ | Allegiance Coal Ltd | 0.026 | -33% | -47% | -70% | -94% | $ 38,186,045.30 |
| YAL | Yancoal Aust Ltd | 5.89 | -13% | -3% | 18% | 113% | $ 7,790,592,678.30 |
| NHC | New Hope Corporation | 5.86 | -12% | -8% | 33% | 157% | $ 5,187,744,524.76 |
| TIG | Tigers Realm Coal | 0.014 | -13% | -13% | -22% | -30% | $ 182,933,833.15 |
| SMR | Stanmore Resources | 3.42 | 0% | 16% | 76% | 218% | $ 3,253,987,929.78 |
| WHC | Whitehaven Coal | 8.4 | -10% | -11% | 35% | 213% | $ 7,469,718,152.40 |
| BRL | Bathurst Res Ltd. | 0.86 | 1% | 1% | -16% | 10% | $ 164,569,410.80 |
| CRN | Coronado Global Res | 2.04 | -5% | 3% | 61% | 82% | $ 3,352,907,460.00 |
| JAL | Jameson Resources | 0.095 | 0% | 4% | 36% | 23% | $ 37,193,554.50 |
| TER | Terracom Ltd | 0.865 | -14% | -7% | 6% | 338% | $ 708,855,117.98 |
| ATU | Atrum Coal Ltd | 0.006 | -14% | 0% | 3% | -74% | $ 8,350,195.03 |
| MCM | Mc Mining Ltd | 0.32 | -9% | 16% | 79% | 324% | $ 129,246,516.43 |
| DBI | Dalrymple Bay | 2.48 | -1% | 2% | 20% | 24% | $ 1,229,488,934.16 |
Singapore iron ore futures fell 0.93% yesterday but continue to trade well above long term averages at US$126.95/t.
China’s reopening has stirred excitement from traders that demand for steel and its raw materials like iron ore and coking coal will recover in 2023.
There was positive news yesterday out of the Middle Kingdom, where the National Bureau of Statistics’ official purchasing manager’s index expanded for the first time in three months, up 3.1 points to 50.1.
Crude steel output in China fell for a second straight year to a still high 1.013Bt last year (-2.1%).
Major iron ore miners have cut a bullish tone on China’s reawakening, with Fortescue Metals Group (ASX:FMG) founder Andrew Forrest the latest to speak strongly on pent up demand from the end of its Covid lockdowns on the miner’s quarter results call last week.
Forrest said the release of that demand will see it remain “a major growth centre” which absorbs “huge amounts of commodities from around the world”.
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 | 0.025 | 0% | 0% | -46% | -54% | $ 11,650,682.08 |
| ADY | Admiralty Resources. | 0.007 | 0% | -13% | -22% | -50% | $ 7,821,474.92 |
| AKO | Akora Resources | 0.165 | 0% | 0% | 0% | -39% | $ 12,272,335.70 |
| BCK | Brockman Mining Ltd | 0.026 | 13% | 4% | -21% | -43% | $ 222,725,571.14 |
| BHP | BHP Group Limited | 49.38 | 0% | 8% | 28% | 18% | $ 249,390,345,971.88 |
| CIA | Champion Iron Ltd | 7.15 | -8% | -2% | 49% | 13% | $ 3,723,790,507.20 |
| CZR | CZR Resources Ltd | 0.235 | -6% | 12% | -6% | 77% | $ 52,712,974.08 |
| DRE | Dreadnought Resources Ltd | 0.11 | 17% | 5% | 69% | 197% | $ 339,870,104.20 |
| EFE | Eastern Resources | 0.017 | 6% | -41% | -31% | -69% | $ 19,980,543.53 |
| CUF | Cufe Ltd | 0.023 | 0% | 53% | 21% | -36% | $ 22,220,584.40 |
| FEX | Fenix Resources Ltd | 0.26 | 4% | 8% | -5% | 13% | $ 160,644,528.00 |
| FMG | Fortescue Metals Grp | 22.24 | -1% | 8% | 21% | 14% | $ 68,322,231,530.42 |
| FMS | Flinders Mines Ltd | 0.49 | -6% | 21% | -8% | -6% | $ 80,203,074.08 |
| GEN | Genmin | 0.1975 | -1% | 1% | -23% | -6% | $ 64,557,570.00 |
| GRR | Grange Resources. | 1.015 | -1% | 20% | -9% | 29% | $ 1,186,272,165.45 |
| GWR | GWR Group Ltd | 0.061 | 2% | 3% | -36% | -65% | $ 19,594,215.96 |
| HAV | Havilah Resources | 0.36 | -4% | 9% | 44% | 106% | $ 109,240,527.45 |
| HAW | Hawthorn Resources | 0.1 | -5% | -13% | 18% | 14% | $ 35,176,639.37 |
| HIO | Hawsons Iron Ltd | 0.093 | -7% | 13% | -71% | -57% | $ 75,583,596.77 |
| IRD | Iron Road Ltd | 0.105 | -9% | -19% | -25% | -42% | $ 88,266,888.60 |
| JNO | Juno | 0.105 | -9% | 8% | -13% | -9% | $ 14,244,090.11 |
| LCY | Legacy Iron Ore | 0.017 | 0% | -11% | -11% | -15% | $ 108,916,045.38 |
| MAG | Magmatic Resrce Ltd | 0.105 | -13% | 13% | 67% | 18% | $ 35,154,671.77 |
| MDX | Mindax Limited | 0.059 | 0% | 0% | 0% | 48% | $ 115,533,663.12 |
| MGT | Magnetite Mines | 0.45 | -8% | -27% | -64% | -75% | $ 35,643,958.23 |
| MGU | Magnum Mining & Exp | 0.026 | -4% | 24% | -38% | -67% | $ 18,066,840.19 |
| MGX | Mount Gibson Iron | 0.6 | -10% | 24% | 14% | 45% | $ 759,012,083.13 |
| MIN | Mineral Resources. | 88.94 | -3% | 15% | 66% | 65% | $ 17,564,166,765.00 |
| MIO | Macarthur Minerals | 0.1675 | 20% | -1% | -9% | -49% | $ 27,746,959.24 |
| PFE | Panteraminerals | 0.135 | -7% | 23% | 8% | -29% | $ 7,467,662.40 |
| PLG | Pearlgullironlimited | 0.033 | 10% | 6% | -10% | -44% | $ 2,957,778.49 |
| RHI | Red Hill Minerals | 4.79 | 2% | 16% | 50% | 65% | $ 299,354,018.81 |
| RIO | Rio Tinto Limited | 126.64 | 0% | 9% | 29% | 11% | $ 46,595,059,181.28 |
| RLC | Reedy Lagoon Corp. | 0.01 | -9% | 0% | -29% | -70% | $ 5,667,196.01 |
| CTN | Catalina Resources | 0.01 | 11% | 0% | 11% | -17% | $ 12,384,868.92 |
| SRK | Strike Resources | 0.086 | 0% | -9% | -22% | -28% | $ 24,970,000.00 |
| SRN | Surefire Rescs NL | 0.014 | -7% | 17% | -22% | 27% | $ 22,139,088.68 |
| TI1 | Tombador Iron | 0.028 | 0% | 8% | 17% | -30% | $ 64,109,471.19 |
| TLM | Talisman Mining | 0.165 | 0% | 18% | 10% | 0% | $ 31,915,714.49 |
| VMS | Venture Minerals | 0.027 | -4% | 17% | -4% | -34% | $ 47,701,104.98 |
| EQN | Equinoxresources | 0.165 | 27% | 27% | 22% | -21% | $ 7,425,000.17 |
| AMD | Arrow Minerals | 0.007 | 17% | 100% | 75% | 40% | $ 20,270,120.75 |
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