Here’s how bad news became good news for shareholders of Whitehaven Coal with the company’s September quarter production and sales report telling the story and how that helped push the price for the company’s thermal coal to new record levels above $A580 a tonne.
The bad news was a 23% drop in its first-quarter production, hurt by flooding in NSW and lack of access to its Maules Creek mine, also in NSW.
Normally a slide of that magnitude is a big negative.
That saw the country’s largest independent coal miner report managed run-of-mine coal production of just 4.0 million tonnes for the September quarter compared with market estimate of 5 million tonnes, and the company’s year-ago production of 5.2 million tonnes.
The good news was the way that shortfall helped keep thermal coal prices much higher than expected, and how the slide in the value of the Aussie dollar in the quarter then helped produce all-time record prices for the company’s thermal coal exports.
This also helped enabled the company to ride out the sharp weakening in prices and demand for coking (steel-making) coal as Whitehaven quickly re-directed some of its higher energy soft coking coal into the thermal coal market at higher prices.
Investors of course opted for the bad news, sorry the good news by marking up the shares 1% to $10.52.
And that’s no wonder the shares rose because Whitehaven still sees the strong demand and prices for thermal coal extending beyond 2023.
Whitehaven told the ASX that the “September quarter saw three consecutive record highs for the monthly gC NEWC Index, with the month of September setting the record high at US$434/t, following US$417/t in August and US$411/t in July. The September quarter gC NEWC index of US$421/t exceeded the June record high of US$377/t by US$44/t.”
That saw the average price for the company’s coal jump to $US581 a tonne for the quarter, from the previous high of $A514 a tonne in the three months to June.
“Energy security was a continued focus during the quarter with continued strong demand, supply constraints and high prices for high quality thermal coal,” Whitehaven said.
“Looking locally, a number of weather events impacted coal producers during the September quarter, which together with the forecasted La Niña weather patterns, has further bolstered support for strong coal prices out of East Coast Australia.”
Total coal exports from the Port of Newcastle for September 2022 YTD are down 11.9% (14.2Mt) compared to the prior corresponding period and down 15.5% (18.9Mt) compared to the September 2019 YTD, the peak export year.
“Exports are down due to a combination of production impacted by weather, labour availability, COVID impacts and lower yield as producers maximise high CV coal production to take advantage of the differential between high CV and low CV prices.
“The metallurgical coal market significantly weakened in the September quarter as steel demand dropped on a significant slowdown in China due to strict COVID lockdowns, India’s tariffs on steel exports and overall softened demand for steel products.
“The continued inversion of metallurgical and thermal coal prices incentivises the sale of thermal coal over metallurgical coal.
“The impact of sanctions and embargoes on Russian coal is resulting in a high CV thermal coal trade flow response, where countries that typically do not take large volumes of high CV thermal coal are now moving to take advantage of cheaper Russian coal.
“Northern hemisphere coal inventories are adequate coming into the winter season; however, they are expected to be drawn down quickly and replenishing stocks with Russian coal is unlikely to occur under the current sanctions.
“There is also uncertainty around natural gas supply into Europe via the Nordstream pipelines, which has appreciably strengthened gas prices, making thermal coal significantly cheaper on a per gigajoule basis than gas. The coal to gas price differential in Europe is also apparent in the Asian market.
Much like Europe, our main Asian customer regions appear to have sufficient stocks in preparation for the cooler season.
“Russian coal is steadily moving out of our key Asia markets as sanctions roll through. The large state-owned power utility in Taiwan stopped taking Russian coal in August and Japan will stop taking delivery of Russian coal at the end of March when pre-existing contracts run out in line with the Japanese fiscal year.
“Given the lack of available supply side response, we continue to view thermal coal prices as well supported throughout FY23 and beyond. La Niña and labour shortages may continue to impact production with strong demand for high-CV coal and extremely tight supply in the absence of Russian coal.
“In metallurgical markets, while pricing is relatively strong compared to historical levels, we expect further volatility with ongoing global economic pressures.”
