The dynamics in the steel market are being impacted by the US-China trade war. As per Australian coal company, Whitehaven Coal Limited (ASX: WHC), the thermal coal prices have continued to exhibit weakness due to the impact of ongoing market conditions which include:
- Low seaborne LNG (Liquefied natural gas) prices into Europe and Asia;
- Chinese import restrictions;
- Negative sentiment on global GDP (Gross Domestic Product) stemming from the trade tensions between the US and China.
(Source: CRU Thermal Coal Market Outlook - July 2019)
Supply Cuts in Coal
Further, the lower Seaborne demand in 2019 is forcing cuts in supply. Although thermal coal imports to Vietnam and Pakistan have been growing strongly, the USA, Columbia and South Africa have suffered cuts to thermal coal exports. At the same time, Russia and Australia are increasing exports of higher energy coal whilst Indonesia continues to increase the supply of lower energy product.
Weaker demand and previously resilient supply of steel products into the export markets from the key NE Asian producers has resulted in widespread production cuts, causing softening in raw material demand, even for hard coking coal.
Impact of US-China Trade war on China
Due to the ongoing trade war, China’s industrial sector witnessed lower growth in the September quarter, as reported by NAB’s Research division. During the quarter, China’s economy grew by 6.0% yoy. This is the weakest rate of growth since the year 1990. As per NAB’s Research Division, despite the overall decline in China’s import volumes, a number of major commodities recorded strong increases in volumes in September. The imports of both coal and crude oil grew strongly – up by 20.3% yoy and 10.8% yoy respectively, while iron ore imports also rose – up by 6.3% yoy to 99.4 million tonnes.
The below-mentioned two ASX-listed coal stocks ended today’s trade in the green zone. Let’s take a closer look at these Coal players and their recent updates.
Whitehaven Coal Limited (ASX: WHC)
An emerging force in the Australian Coal mining industry, Whitehaven Coal Limited (ASX: WHC) produces coal to service its premium markets of Japan, Korea and Taiwan. The company is now looking forward to taking advantage of the substantial growth in coal-fired power generation in Southeast Asia.
On 22 October 2019, Whitehaven released its September quarter report. For the quarter, the company reported Equity ROM Coal Production of 3,391K tonnes, up 17% on the previous corresponding period (pcp). Further, the company reported Equity Saleable Coal Production of 3,861k tonnes, up 18% on pcp. Total Equity Coal Sales for the September quarter was 4,466k tonnes.
Whitehaven Equity Totals for September Quarter (Source: Company reports)
WHC Highlights of September Quarter
- Safety performance improved with the TRIFR at 5.14 for the twelve months ended September;
- 4Mt ROM coal production during quarter, up 22% on the previous corresponding period (pcp);
- September quarter coal sales of 5.5Mt, up 14% on pcp;
- Whitehaven executed an agreement with EDF to acquire EDF’s 7.5% interest in the Narrabri underground longwall mine which when completed will increase Whitehaven’s equity ownership level to 77.5%;
- Equipment at Tarrawonga arriving and ramp up to 3Mtpa has commenced;
- FY20 guidance remains unchanged since issued to the market on 15 August 2019.
In the month of August 2019, the company struck a deal to acquire EDF Trading Australia Pty Limited, (owner of 7.5 percent interest in the Whitehaven-operated Narrabri Mine). Following the completion of the acquisition, which will take place between November 2019 and February 2020, Whitehaven will own 77.5% of the mine and will account for the underlying interest in the additional 7.5% at that time.
In FY2020, the company is expecting the Managed ROM Coal Production to be in the range of 22.0Mt – 23.5Mt.
In the past six months, WHC stock declined by 24.72% as on 21 October 2019. At market close on 22 October 2019, WHC’s stock was trading at a price of $3.280, up by 3.797%, with a market capitalisation of circa $3.24 billion.
New Hope Corporation Limited (ASX: NHC)
Diversified energy company, New Hope Corporation Limited (ASX: NHC) is one of Queensland’s largest ASX listed corporations by market capitalisation (~1.79 billion). The company is the market leader for high quality, low HGI coal from Queensland and continues to promote this coal into new markets, experimenting with new products.
In FY19 (year end 31 July 2019), the company reported revenue of $1,306 million, up 21% on pcp and earned NPAT before non-regular items of $268 million (up 3% on PCP), both driven by the increased share of coal sales from the Bengalla Joint Venture. Further, the company earned earnings per share of 25.3 cents, up 41% on pcp and declared a final dividend of 9 cents per share, up 13% on pcp.
During the year, the company produced 10.9 million tonnes of saleable coal in 2019 which is a 21% increase on last financial year and the highest in the company’s history.
In the second half of 2019, the company was majorly focused on the integration of Bengalla into the New Hope business to improve efficiency and lower unit costs across the business.
New Hope 2019 Achievements:
- The drilling of five development wells (three successful and on production)
- Production optimisation from well workovers resulting in increased production
- Progressing feasibility studies for the enhanced oil recovery project at the Moonie field in the Surat Basin
- Successfully de-risking the company’s exploration portfolio with farm-out of work programme activities
- Achieving the grant of an additional exploration tenement, ATP 2036 in the Surat Basin
During the year, New Hope entered into an amortising secured loan facility for $600 million with a syndicate of Australian and international banks. As at 31 July 2019, the company had net debt of $301.2 million.
In the past six months, NHC stock declined by 25.35% as on 21 October 2019. At market close on 22 October 2019, NHC’s stock was trading at a price of $2.160, up by 0.465%, with a market capitalisation of circa $1.79 billion.
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