Supply squeeze to prolong energy crunch: Whitehaven
Coal supply will continue to lag in the face of rampant demand, as major economies emerge from the pandemic, Whitehaven says.
Whitehaven Coal expects an energy crisis that has caused blackouts in China and India to be prolonged given a lack of new supply being made available to buyers.
Newcastle thermal coal has surged to an all-time high of $US243 a tonne as buyers clamour to grab supplies of the commodity used for power generation ahead of the northern hemisphere winter, creating an energy crunch reverberating through major economies including China.
Whitehaven, which expects to pay off its remaining debt within six months amid the price boom, said the squeeze could be attributed to rampant demand as major economies emerged from the pandemic and lagging supply.
“The whole energy complex is in the same boat. Everybody wants more,” Whitehaven managing director Paul Flynn told analysts after its quarterly result.
“So I think this is going to go on for a while. There’s not a lot of supply response and that’s the biggest feature of this. The abruptness of this correction in this particular cycle is the fact that between this one and the last, there wasn’t a material supply response. That’s made the corrections here more aggressive as a result of just not having the additional supply being brought on. That’s a positive thing obviously for prices.”
Booming thermal coal prices would result in “significant cash generation” for Whitehaven over the coming months, with the producer yet to fully benefit from the surge due to pricing lags.
Broker Shaw and Partners expects prices to remain high until the end of the year.
“Right now we are in the midst of a global energy squeeze which is largely supply side driven. Coal prices will likely stay higher for the next quarter or so, not least because we are heading into the northern winter heating/demand period,” Shaw analyst Peter O’Connor said.
Whitehaven expects to pay off its senior debt facility early next year and achieve a net cash position in the March 2022 quarter.
With coal companies increasingly struggling to secure loans through traditional lenders due to climate concerns, Whitehaven is looking at the bond market ahead of a $1bn senior debt facility expiring.
The crisis at Chinese property developer Evergrande had “muddied the waters” for Asian bonds, Whitehaven cautioned, with the coal producer watching the market until volatility subsided.
“There’s no doubt the current property market influence has muddied the waters,” Mr Flynn said on Thursday.
Whitehaven chief financial officer Kevin Ball added: “Spreads in the US market really haven’t moved much at all. But spreads in the BB market in Asia are probably up 200 basis points in six weeks.”
Whitehaven said it expected Asia’s debt capital markets to be supportive of its funding plans over the long term.
“Our view here is that the Asian debt capital markets will provide the funding for Asian resources for decades to come. That’s really why we want to put a foot there in the next period,” Mr Ball said.
Whitehaven, which operates four mines in NSW’s Gunnedah Basin, told a parliamentary inquiry in June of difficulties securing debt and insurance cover as the finance industry clamps down on its exposure to coal and its high-carbon emissions. Despite the record price surge, Whitehaven said its average thermal coal price over the September quarter was $US142 a tonne, a 15 per cent discount to the Newcastle average over the three-month period.
Some 57 per cent of Whitehaven’s thermal coal sold in the quarter was priced over earlier periods while 22 per cent of supplies used a different pricing mechanism.
Its run of mine coal production increased 15 per cent to 5.16 million tonnes on the same period a year earlier, while total managed coal sales fell 23 per cent to 4.6 million tonnes.
Whitehaven shares fell 2.1 per cent on Thursday to $3.23.