Wild week for coal amid boardroom exits, bad weather, production downgrades, and global ructions

Alex DruceNCA NewsWire
Not Supplied
Camera IconNot Supplied Credit: istock

The announcement came in under 200 words, and landed with the trading week all but finished.

But the Friday afternoon missive from Australian miner New Hope Coal was by no means benign.

Chief executive Reinhold Schmidt would be departing the business immediately – the $1.8 billion firm said last Friday week – having handed in his resignation following a “short period of personal leave”.

“Mr Schmidt led the company during a challenging period for both the business and the industry, and delivered organisational changes that positioned the business to withstand the downturn in commodity prices experienced early FY21,” the firm said of Schmidt’s 18-month reign.

The mysterious news sent investors heading for the stands, triggering a 2.1 per cent decline on the ASX and knocking the Queensland company down from near three-month highs.

Whitehaven Coal dropped close to 7 per cent in value on Friday – no doubt also weighed down by its underwhelming production report – while New Hope, Coronado, and Terracom at one point fell by a similar margin.
Camera IconWhitehaven Coal dropped close to 7 per cent in value on Friday – no doubt also weighed down by its underwhelming production report – while New Hope, Coronado, and Terracom at one point fell by a similar margin. Credit: Supplied, Cameron Laird

Of course, that price wobble was soon corrected – and then some – as commodity prices strengthened in coming days on the prospect of continued export disruptions around the world.

Nonetheless, news of Mr Schmidt’s abrupt departure kicked off what has been a curious week for Australia’s coal industry.

Shares in some of the nation’s biggest players – including Whitehaven, Coronado, BHP, Yancoal, New Hope, and Terracom – have rattled around violently as investors weigh sky-high commodity prices and strong demand against the wider impacts of a wet Queensland summer and corona-fuelled supply chain woes.

The drama continued on Friday as news out of Indonesia – Australia’s biggest coal export rival – indicated the country had revoked export bans on mines that had not fulfilled their domestic market obligations.

The decline in a number of ASX-listed coal shares subsequently outpaced a wider market decline.

Whitehaven Coal dropped close to 7 per cent in value on Friday – no doubt also weighed down by its underwhelming production report – while New Hope, Coronado, and Terracom at one point fell by a similar margin.

BHP and Yancoal stumbled by lesser amounts but were still caught up in the sell-off.

It is the latest fluctuation in what has been a tumultuous period for the coal industry which – despite it all – remains the nation’s second largest export money spinner behind iron ore.

Companies were battered in 2020 as the onset of the pandemic melted demand, while a rolling diplomatic feud with China has also robbed Australia of a key export market.

Exacerbating the situation has been the mounting pressure around coal and its contribution to climate change – something that has even the most ardent backers nervous, particularly as major consumers such as Korea and Japan pledge to decarbonise.

What’s more, an agreement to reduce coal-fired power to avoid catastrophic levels of global warming was endorsed by nearly 200 nations at last year’s United Nations summit in Glasgow.

Australia was not among them.

Despite the temporary cooling effects of La Niña events, 2021 was still one of the seven warmest years on record, according to six leading international datasets consolidated by the World Meteorological Organisation.

Hunter Valley mine
Camera IconANZ economists noted on Friday that Newcastle coal futures had extended gains despite reports of Indonesia’s export ban easing. Toby Zerna Credit: News Corp Australia

“If we rapidly reduce our greenhouse gas emissions we may be able to stick to the Paris Agreement, but at the moment, we‘re heading for global warming exceeding 2°C and that will come with much worse heatwaves, more extreme rainfall, and the end of our coral reefs,” said Dr Andrew King, a lecturer in climate science at The University of Melbourne.

“On our current trajectory we‘ll have very few years as cool as 2021 again, but if we make major efforts to decarbonise our economy and society then we can avoid leaving behind a much more dangerous and inhospitable climate for future generations to manage.“

However, both shares and commodity values have defied gravity since the middle of last year, with coal prices rising to record highs as a surge in near term demand collides with supply chain gridlock.

Short term pain, medium-term gain

ANZ economists noted on Friday that Newcastle coal futures had extended gains despite reports of Indonesia’s export ban easing.

“Authorities revoked the coal export ban on mines that have completed 100 per cent of their domestic market obligations,” Brian Martin and Daniel Hynes wrote.

“However, with much uncertainty around export volumes in the short term, prices are likely to remain well supported.”

In its commodity strategy, ANZ remains neutral long-term on coal.

“China’s measures to increase coal availability could cap further price rises,” the bank wrote this week.

“Authorities are also urging producers to expand supply at all costs to alleviate

shortages. However, the market is fragile, with the prospect of another harsh winter likely to bolster demand.”

Coronado, the $2.3 billion miner with operations in Queensland and the US, expects pricing to remain at elevated levels until supply recovers and the weather, logistics chains, and Covid-19 disruptions are cleared.

“Due to the nature of our coal contracting being on a three to six-month lag basis, we expect March 2022 realised pricing to mirror the December quarter before prices cool in subsequent quarters. “However, expectations are that benchmark index prices in Australia and the US will remain above historical averages throughout 2022.”

Originally published as Wild week for coal amid boardroom exits, bad weather, production downgrades, and global ructions

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