Coal is unloaded onto large piles at the Ulan Coal Mines near the rural town of Mudgee in central New South Wales, Australia, March 8, 2018.
David Gray | Reuters
Shares of Australian coal producer Whitehaven are up 200% this year.
The Australian-listed miner’s share price has risen around 150% since the Russian-Ukrainian crisis began in late February and hit a record high of 7.90 Australian dollars ($5.47) on Wednesday.
In other words, an investor who bought Whitehaven shares at the end of last year would have seen their investment grow more than three times.
The chatter among stock watchers on the popular Australian online stock forum HotCopper has also increased.
Some were excited about Whitehaven’s historic high while others feared its share price was “too high”.
But one analyst warned.
Investors wondering if they want to cash in on the stock should be wary as the stock is now highly speculative, said Under The Radar Report Australian equity analyst Peter Chilton, mining analyst.
“It’s a good company, but there’s been a lot of share price exuberance, which isn’t sustainable,” Chilton said.
Based on its latest annual results, Whitehaven is not profitable. The coal producer recorded losses of around A$500 million last year, including write-downs.
Last year it attributed its poor performance to the high value of the Australian dollar, Covid-19, production problems and, ironically, the drop in the price of coal. The company is due to release its latest 2022 annual results on Thursday.
But this year, the meteoric rise in the price of thermal coal, the world’s benchmark fuel for power generation, is driving Whitehaven’s rise.
The price of fuel soared even faster after the start of the war in Ukraine, with trade in high-quality thermal coal at record highs above $400 a ton. In comparison, over the past ten years, high-quality thermal coal has fetched between $50 and $120. a ton.
The Ukraine crisis and the subsequent European Union ban on Russian coal imports – which came into effect in early August – removed part of the world’s coal supply. This has forced many European countries to go further to Australia for fuel supplies, driven by greater urgency as winter approaches.
The International Energy Agency has warned in a report last month, global coal demand is expected to return to a record high this year, while coal consumption in the European Union could increase by 7% this year on top of the year’s 14% jump last.
Efforts to cut emissions have been put on the back burner, with coal being “the biggest source of energy-related carbon dioxide emissions”, the IEA said.
“With other coal producers facing constraints to replace Russian production, prices in coal futures markets indicate that tight market conditions are likely to continue into next year and beyond,” the IEA said in a statement in July.
Impact of Russia’s war on Ukraine
The Russia-Ukraine crisis has exacerbated what was already a tight coal market, said Pat Markey, managing director of Singapore-based commodities consultancy Sierra Vista Resource.
“Stronger gas markets have underpinned the strength of coal-fired generation; therefore, it has increased the demand for thermal coal,” Markey said.
“Even before the Russian-Ukrainian war, there was a general lack of investment in the upstream coal sector; therefore, supply did not keep pace with demand, which is supporting the price of coal “.
It was not just Whitehaven that benefited, but also its thermal coal mining peers, including New Hope, Terracom and Yancoal, Markey said.
On Monday, New Hope released quarterly results revealing that its earnings (EBITDA) nearly doubled from the previous quarter.
Terracom’s share price is now close to 1 Australian dollar, down from 20 cents at the start of the year.
Last week, British-Australian miner BHP posted its highest annual profit in 11 years due to high coal prices.
“Basically, the price of thermal coal is exploding…it’s at historically high levels. Like many commodities, including oil, there has been a supply shortage due to reduced investment,” he said. Chilton, the mining analyst.
“We are careful to know if [coal prices] can go higher, because we’re surprised he’s gone that high.”
Markey said that in the medium term, the market seems to be favorable high coal prices and Whitehaven has an advantage given the high quality of its coal, but he wouldn’t say how high the stock price might go.