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Coal exports predicted to soar

7 Apr 2022 2 month(s) ago

The war in Ukraine is helping Australian exporters but local investment options are not extensive.

The war in Ukraine seems likely to have a positive effect on Australia’s trade balance. According to the Epoch Times, Australian coal exports are expected to surpass a record $100 billion (US$76 billion) for the 2021-22 financial year:

The US government’s latest Resources and Energy quarterly report predicts this jump on the back of spiking demand and prices for both metallurgical and thermal coal:

“The value of Australian coal exports will peak at above $105 billion before gradually easing back to typical levels, an annual $41 billion. Increasing Chinese demand coinciding with weather disruptions, supply impacts, and the impacts from the Russian invasion of Ukraine has led to two waves of skyrocketing coal prices within the last six months.”

According to the report global thermal coal markets are undergoing a complex transition, with prices surging as demand outpaced supply due to supply chain disruptions.

“A long-term shift in demand sources away from OECD nations towards Asia was accelerating and a global drive towards low-carbon energy sources had changed incentives for investors, deterring long-term investment away. Demand for coal from the United States and European nations, particularly Austria, Belgium, and Sweden, has fallen at a rapid pace.

“In the short-term however, the Russian invasion of Ukraine is expected to delay some coal plant closures,” the report said. “Germany has closed nearly all of its domestic nuclear generation, making up the loss with imported Russian gas.

“The need to secure its energy supply is expected to lead to scheduled coal plant closures being delayed, and could even lead to some closed plants being temporarily re-opened.”

UBS says Russia is a material coal supplier, at ~15% of the global met and thermal coal market balance (~30% & ~60% of European imports):

“Economic sanctions placed on Russia are pressuring trade as trade finance and shipping availability dries up, tightening in coal markets.”

UBS recommendations for coal stocks are: BHP (Neutral), South32 (Buy), Coronado Global Resources (Not covered), Whitehaven Coal (Not covered), New Hope Corporation (Not covered), Glencore (Buy) and Anglo American (Sell). The broker says each has varied exposures into met and/or thermal coal markets.

Macquarie says resource equities tend to outperform in geopolitical shocks, while financials underperform.

“Underneath the relatively contained reaction at the overall equity market level, is a clear divergence between the ASX sectors. Resource stocks have shown themselves to be consistent outperformers, with gold equities performing best, while mining and energy equities also strongly outperforming. By contrast, Financials have shown themselves to be consistent underperformers, with Insurance stocks faring worst.”


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