Monsters of Rock: Energy-starved China is so desperate it started using Aussie coal again, sort of

China’s State media denies it is in the middle of an energy crisis, and certainly won’t admit its decision to block Australian coal is to blame for soaring thermal and coking prices.

Thermal coal has risen to record levels again overnight, with traders reportedly willing to pay almost US$270/t to get their hands on coal out of Newcastle.

China is facing a massive shortage and has reportedly allowed Australian exports locked up in Chinese ports for over a year to walk free to help ease the ongoing shortage, according to Reuters.

Around 1Mt of the stuff has been sitting in storage since Chinese customs bans signalled the start of a dramatic escalation in the trade war between Australia and China.

Will this ease power prices in a nation which has resorted to power rationing and curbing heavy industry to keep the lights on?

Traders suggested not.

“Without resuming Australian coal imports, the supply shortage will be here to stay for some time, as it takes time to boost domestic production after nearly 5 years of output curbs,” one told Reuters.

They said the crunch could last until winter eases in March next year.

Coal stocks’ rally continues

As prices rise Australian coal stocks are extending gains they’ve made this week, again leading the charge among the ASX 200 and ASX 300 listed miners.

Yancoal (ASX:YAL) is closing on a $5 billion market cap after lifting ~9% in trade today.

Whitehaven Coal (ASX:WHC) (~4%) and New Hope Corporation (ASX:NHC) (~3.5%) were also well supported, while copper miner 29Metals (ASX:29M) and Rio-backed uranium stock Energy Resources of Australia (ASX:ERA) were also among the top performers.

As political and social support wanes for coal mining amid the energy transition, will coal producers enjoy conditions like these forever? History says no.

On the other side of this trip, never forget it has a history of dropping 30% in a month and 65% in 6 months. #coal scaling down positions is on the horizon. Yes it could have a 2nd run post a 50% drop. https://t.co/XlT39FdWMM

— Cycle Bottom (@BULLReturns) October 6, 2021

But for the foreseeable future we should see a return to profit for coal equities.

Junior miner Terracom (ASX:TER), which owns the Blair Athol mine in Queensland, received US$177/t for the coal it produced in September, the company reported today.

In the December Quarter that should rise to a predicted US$230/t, delivering a margin of more than US$140 on every tonne produced.

PILBARA MINERALS (ASX:PLS)

This is the second time we’ve covered Pilbara Minerals today, but then the giant spodumene producers seems to be the gift that keeps on giving as lithium prices rise.

The heat has come out of Pilbara Minerals somewhat since its wild spodumene auction last month collected prices in the order of 6 times what it was making a year ago.

But overall it is looking a lot healthier than it did this time 12 months ago when lithium prices hit their nadir.

Pilbara ramped up production from 77,912dmt in the June quarter to 85,759dmt in the September Quarter, the company said today, although shipments were down from 95,972dmt to 91,549dmt.

That still exceeded guidance of 77,000-90,000dmt, helping bolster the company’s cash balance from $115.7m at the end of the financial year to $137.3m as of September 30.

The big lithium miner says it is also well progressed on discussions with South Korean steel giant and battery maker POSCO on a downstream lithium chemical JV in the Asian nation.

The lithium hydroxide plant in Gwangyang is expected to be commissioned by the June quarter of 2023.

Pilbara Minerals share price today:

AUSTRALIAN STRATEGIC MATERIALS (ASX:ASM)

Australian Strategic Materials a 327% rise over the past year as the scale and development prospects for its Dubbo rare earths project and downstream processing facility in South Korea emerged.

The rare earths market has been rising steadily over the past year as countries outside China, which largely controls the market for the key minerals used in tech like magnets and cars, have looked to secure alternative sources of supply.

$1.5 billion capped ASM is regularly featured in the ASX’s top rising mid-caps, moving into the ASX 300 in the latest quarterly rebalance, and sentiment remains strong enough that even bad news can’t get shareholders down.

The company reported today that Covid-19 issues and border restrictions had prevented due diligence on a US$250 million framework agreement from a consortium of Korean investors from being completed by the end of the September Quarter as planned.

In the same breath, the company announced it was working with ANZ to finalise debt funding for the Dubbo project, which contains a zircon rich rare earths reserve of 18.90Mt containing 0.735% total rare earths oxide.

“The Framework Agreement is one part of the financing of the Dubbo Project, ANZ’s appointment facilitates further engagement with debt providers that include Australian and Korean export finance agencies, ASM managing director David Woodall said.

“We continue to progress the financing of the Dubbo Project, the development of which will provide an alternate, sustainable, secure, and stable supply of high purity and clean critical metals directly into the Korean manufacturing sector.”