Record coal prices to encourage mine development, expansion, says Nationals senator Matt Canavan
Queensland Nationals senator Matt Canavan says record coal prices will see the Australian coal industry invest and expand to increase production.
Nationals senator Matt Canavan says record coal prices will encourage Australian miners to kick-start the further expansion of the nation’s coal industry, particularly in Queensland’s thermal coal-rich Galilee basin.
The comments come as the price of thermal coal shipped out of Newcastle surged 12.8 per cent to a fresh record high of $US204.75 overnight on Tuesday, boosting the share price of ASX listed coal miners.
It means the price of thermal coal – used to generate electricity – has jumped more than 270 per cent since its 12-month low of $US54.70 last October, with supply currently failing to meet resurgent electricity generation demand caused by massive economic stimulus around the globe.
Coking coal, which has underpinned booming global steel production, has also hit record highs. Its last price of $US367.67 represents a 183 per cent lift on its yearly low.
The price jump contrasts with iron ore, which has crashed from $US200 a tonne in recent months to below $US100 a tonne last week.
Iron ore futures in Singapore on Tuesday slid 7.1 per cent to $US110.60 a tonne amid reports that more than 80 of China’s steel mills have suspended production for maintenance.
Surging coal prices have created a dilemma for value investors who have increasingly shunned coal-linked stocks as they respond to environmental demands. The rise also represents a boon for fund managers that stuck with coal, with many producers expected to start paying bumper dividends again after several lean years.
Senator Canavan told The Australian that although he thought prices would moderate with time, margins would remain strong enough to encourage coal miners to expand production.
“It’s unlikely prices will stay at these heights because prices at these amounts will encourage more supply,” he said.
“But I think this will encourage people to look at the expansion of coal mining. These large price increases seem to be the result of shortages of coal in a number of markets and that indicates that coal demand is very high and healthy, especially in the Asia-Pacific region.”
He added that he was confident higher prices would encourage miners “to look to the Galilee Basin and expand coal production there” alongside Adani’s controversial Carmichael coal mine.
“Demand for coal is increasing, and we have really good-quality coal,” he said.
“So, my view is that it will encourage increased supply like we’re seeing from the Galilee Basin from Adani. There are five other mines there under various stages of progress, there is expansion potentially of Adani, there is lots of potential for the coal industry in Australia.”
The global increase in coal prices has seen coal miner share prices make a comeback from recent lows caused by Covid and concerns about China’s unofficial ban on Australian coal imports. On Tuesday shares in Whitehaven Coal lifted 6.5 per cent to $3.27, a level not seen since November of 2019.
New Hope Corporation lifted 5.1 per cent to $2.46 while Yancoal Australia lifted 3.9 per cent to $2.66.
Yancoal CEO David Moult said the price lift was due to stimulus-led demand as well as supply constraints in Australia and Indonesia, and logistic disruptions in South Africa and Russia.
“Strong demand has also contributed to increasing prices, as economic stimulus packages continue to take effect in 2021 and underpin the demand for thermal coal,” he said.
Whitehaven Coal chair Mark Vaile said a return to historic highs in coal prices “foreshadows a return to dividend-paying status in the near future”.
In its annual report it said demand from its Asian customers “remains active with increasing interest by customers to secure coal” in 2022, while the Chinese efforts to fill supply gaps caused in part by the Australian coal ban made it easier for Whitehaven to secure higher prices.
“Strong China coal demand, supported by increased economic activity and challenges in expanding domestic China coal production, compounded by China’s ban on Australian coal, have modified coal flows in the seaborne market and elevated seaborne coal prices to record levels,” Whitehaven said.
Mr Moult said Chinese efforts to source coal were opening up export opportunities for Australian miners.
“Australian coal is filling the demand gap in those markets whose traditional sources of supply have now been absorbed by China,” he said.
Analysts are tipping high coal prices to continue into the northern winter, with reports from China indicating a lack of thermal coal supply has already caused blackouts.
CBA global markets commodities researcher Vivek Dhar said China’s shortage of thermal coal was creating an “elevated” price environment that would persist until it ramped up domestic coal production.
“The biggest constraint there is to do with domestic policy, where we are seeing environmental checks and mine safety checks to really limit the coal production in China,” he said.
“And for me, the point where this will likely start to reverse is when we start seeing Chinese coal production recover and return to a level that means they are supplying what they need.
“ … They are looking to restart shuttered mines.
“But it’s not a consistent policy by any means because we are still seeing talks of safety checks and environmental checks.”
Mr Moult said the price would ease once supply issues abated, but heightened demand could keep prices high well into next year.
“Even if supply-side factors do start to align with demand, it will take some time before these supply sources come onstream and reach full capacity,” he said.
“As a result, continued strong thermal coal prices could be supported well into 2022.”
Chinese companies have been attempting to fill the coal supply gap by paying premium prices for liquefied natural gas (LNG), causing a price surge that has spilled over to other energy commodities including petroleum.