- Coal prices continue to slide as China takes several measures to improve supply and crackdown on hoarding.
- China is planning to set the price of 5500-NAR grade coal at US$69/tonne at the pithead.
- After a bull run for over a month, the commodity market is experiencing some corrections, and gas and coal prices are easing.
Last month saw a phenomenal rise in the prices of fossil fuels. The energy crisis in Europe and China pushed the prices of coal and natural gas to multi-year high levels, raising concerns about higher inflation.
Europe depends on natural gas for heating purposes during cold weather. As the supply of natural gas dwindled due to a sharp rise in demand, the competition between European and Asian buyers led to a surge in the prices.
Last year, the COVID-19 pandemic-induced challenges delayed/postponed several energy projects. As recovery from the pandemic began at a much faster rate than anticipated, the energy and resources industries were not ready for such a steep rise in demand.
YTD price chart of Newcastle Coal (Image source: Refinitiv, Analysis: Kalkine media)
In the chart above, we can see that the prices started moving up from US$100/tonne in June 2021 and reached US$280/tonne by October end. The coal prices nearly tripled in the last five months.
As of today, the prices are trading around US$145/tonne, still nearly 50% up from the June levels.
Why are coal prices sliding now?
The Chinese authorities have taken several steps to ease the supply constraints and keep a close watch on any speculative or hoarding activity around the commodity. The government is also planning to fix the prices of certain grades of coal, and for starters, 5500-NAR grade prices are expected at US$69 per tonne.
Related read: Why are coal prices at decade highs?
Coal is not alone in this correction phase, natural gas and other commodities are also following the same suit.
China’s Q3 GDP growth rate was the lowest in decades. Also, September quarter GDP data of the US was below market expectations. Shrinking of the GDP growth rate is worrying the market and putting pressure on the commodity market.
China is expected to continue its efforts to bring coal prices down further in order to curb the rising energy prices. More downside in coal prices can be expected in the near term.
Let us skim through some of the ASX-coal players and see how well they are dealing with a downward price trend.
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BHP Group (ASX:BHP)
BHP Group has a diversified resource portfolio spread across several geographies. The ASX heavy lifter deals in iron ore, coal, copper, nickel, petroleum, and several other base metals. The diversified asset and resource portfolio provides certain hedging to the Company, and it is very unlikely that the multiple commodities face stress at the same time.
Related read: BHP and Wyloo lock horns over Noront takeover
On 2 November 2021, BHP closed the day’s trade at AU$35.560, down 2.335% from its last close. As the commodity market is sliding, the effect can be seen on the share prices also.
BHP shares have shed 3% in the last one month, and more than 7% in the last 15 days.
Whitehaven Coal (ASX:WHC)
Whitehaven Coal operates several coal projects across Australia and is among the top coal producers of the country.
The share of WHC fell nearly 26% in the last two weeks. WHC shares traded at AU$2.37 on 2 November 2021, down 9.542% from the previous day.
Related read: What is dragging IOOF, Whitehaven shares lower?
New Hope Corporation Limited (ASX:NHC)
The Brisbane-based coal miner currently operates two open-cut thermal coal mines. As the prices of thermal coal are sliding, the share price of NHC is also under pressure.
NHC fell more than 5% today, and in the last one month, the share price has witnessed a 21% fall.
Bowen Coking Coal Limited (ASX:BCB)
Bowen Coking Coal is engaged in coking coal projects in the Bowen Basin. The drop in the prices of coal do not seem to affect metallurgical coal mining companies.
BCB traded ~3% down to AU$0.17 on 2 November 2021. In the last one month, the share price of BCB has appreciated more than 11%.
Related read: ASX coal stocks to look at amid China's power crisis
Allegiance Coal Limited (ASX:AHQ)
The small-cap coal miner operates metallurgical coal projects in Canada and the United States of America. The Company, in its recent update, has put forward production guidance of 100k tonnes per month from November 2021.
In the last one month, AHQ shares fell nearly 50%. On 2 November 2021, the shares traded at AU$0.47, up 1.075% from its last close.