Newcastle coal sets record as global energy crisis deepens
Shares in major Australian coal producers soared on Monday after the fossil fuel jumped to a new high amid an ongoing European energy squeeze.
One of Australia’s biggest commodity exports has surged to record levels, with the price of Newcastle coal soaring to all-time highs as miners cash in amid a deepening energy crisis in Europe.
The thermal coal rose to a new high with Newcastle futures trading above $US440 ($648) a tonne, more than doubling since the start of 2022, with Europe’s energy crisis set to worsen as Russia considers a long-term halt of gas supplies to the continent.
Australian mining producers are fattening margins, with operating profits rising by more than $10bn to $81bn in the June quarter, a 14 per cent jump on the previous three months, data released from the Australian Bureau of Statistics on Monday shows.
A prolonged period of high prices may see Australia’s commodity forecaster lift its current $44bn annual export estimate for 2022-23 once new predictions are tabled at the end of September.
The commodity bounce saw Whitehaven Coal shares surge to a record high, increasing 6.5 per cent or 52c to $8.49 on Monday, with windfall pricing for thermal coal delivering rivers of cash to Australian producers.
Whitehaven shares have now tripled in value so far this year, an extraordinary resurgence for an industry under intense scrutiny from investors concerned about climate change.
A string of coal and energy companies turned in a bumper start to the trading week, with shares in Coronado Global Resources lifting 7.5 per cent or 12c to $1.73 on Monday, Yancoal up 7.3 per cent or 43c to $6.31 and New Hope Corporation gaining 5.7 per cent or 29c to $5.39.
Whitehaven in August booked a record $2bn annual net profit and tipped thermal coal prices would remain at elevated levels, with European sanctions on Russian coal to take effect this month and disruptions to coal mines in the NSW Hunter Valley in July caused by bad weather.
“It is likely to take several years before additional supply or alternative energy sources are available to rebalance global supply and demand dynamics,” the company said at the time.
Whitehaven added it was looking to sell as much coal as possible into thermal coal markets while prices were high, and flagged an improved operational performance for the current year.
LNG prices have also skyrocketed as buyers fret over a short-term crunch if Russia fails to restore supplies to Europe, as the reverberations from Moscow’s invasion of Ukraine continue to rattle markets. A range of big energy producers profited from the tight market on Monday, with Australia’s largest gas producer Woodside Energy rising 4.3 per cent or $1.43 to $35.08. The Perth company signed a deal to buy LNG from an export project planned in Louisiana. Beach increased 5.2 per cent or 8c to $1.72.
Moscow’s Gazprom surprised markets on Friday after opting against switching on the critical Nord Stream pipeline after three days of maintenance. European benchmark gas futures rose by 35 per cent, the most in almost six months.
Gas rationing in Europe now looked likely, ANZ analysts said.
“Gas prices are four times higher than a year ago, but alternatives to Russian gas are physically limited at any price. Gas rationing looks very likely, as even at 95 per cent full, storage would only last 2½ months,” the bank’s researchers, Brian Martin and Daniel Hynes, wrote in a note to clients today.
Russia’s decision to limit gas supply was “also going to force Europe to fast-track energy saving initiatives as the worst-case scenario of running out of gas this winter rises in probability”, Mr Martin and Mr Hyne wrote.
“Ultimately, Germany would need to cut natural gas consumption by 15 per cent to keep gas storage facilities from running empty,” the note reads.
“This will add pressure to the North Asian LNG market as European buyers increasingly target the region for LNG.”
European governments are now considering a series of emergency measures to calm markets but few easy fixes are available, according to BNEF analysts.
“The European Commission is faced with limited ‘low-regret’ options as it looks to stage an emergency intervention in the region’s power markets to ease the worsening energy crisis,” BNEF said. “While there is no shortage of tools that can be used to try to curb soaring energy costs, all courses of action carry risks.
“The looming threat of further cuts to gas supply from Russia, coupled with record-low hydro and nuclear output, mean European energy markets are at risk of an extremely tight winter.”
Iron ore, which shed 11 per cent of its value last week, also roared back to life on Monday, rising the most in five weeks on a better outlook for China’s steel demand as its peak building season starts.
Global coal consumption is set to surge back to a record in 2022, repeating an all-time high hit nearly a decade ago as ongoing turbulence hits markets.
The International Energy Agency said in July that global coal consumption was forecast to rise by 0.7 per cent to eight billion tonnes this year, matching the annual record in 2013, with demand tipped to set a new high in 2023 of 8.03 billion tonnes.
It marks the latest turnaround for the fossil fuel, which has been increasingly out of favour with investors and financiers as developed nations pursue net zero emission goals.
China and India, which together consume twice as much coal as the rest of the world combined, are again leading the charge, with coal consumption in China seen at the same levels as last year while Indian demand will rise 7 per cent this year, according to the IEA.
