Whitehaven Coal downgrades guidance for second time in a month
Whitehaven’s cut to forecasts follows problems at Narrabri, but thermal coal demand in Japan and Taiwan has boosted sale prices.
Whitehaven Coal shares slumped more than 15 per cent on Thursday after the company cut its annual sales guidance for the, citing problems at its Narrabri underground mine that cut production and the quality of its output.
Whitehaven managing director Paul Flynn told analysts unexpected geological problems cost Whitehaven about four week’s production at the underground mine, compounding issues faced by the company from the NSW floods, and hurting its ability to take advantage of rising coal prices in the first quarter of the year.
Whitehaven released its March quarter production report on Thursday, again cutting annual sales guidance on the back of the problems at Narrabri.
In March Whitehaven cut its financial year sales guidance to a range of 18.5 to 19 million tonnes, from previous guidance of 19 to 20 million tonnes, to reflect NSW flooding that had disrupted Hunter Valley rail operations, and fresh problems at the Port of Newcastle loading infrastructure.
It now says it expects to sell 17.8 to 18.3 million tonnes of coal this financial year.
Whitehaven shares plunged on the news, closing down 28.5c, or 15.5 per cent, at $1.56.
But, while Whitehaven said strengthening demand for thermal coal in Japan and Taiwan helped lift coal prices despite the impact of ongoing Chinese bans on Australian exports, its own coal sale prices significantly lagged benchmark levels.
Whitehaven received an average $US76 a tonne for thermal coal sold in the March period, up from $US52 a tonne in the three months to the end of September 2020.
While that is a substantial lift, Whitehaven’s average thermal coal price now lags the benchmark Newcastle index by 15 per cent for the period, compared to the 1 per cent premium it was winning six months ago.
Its metallurgical coal sold for an average $US92 a tonne, up from $US73 a tonne in the September 2020 quarter, but lagged the coking coal spot price for the quarter by 4 per cent. In the September quarter it received a 16 per cent premium to the metallurgical coal spot price.
Whitehaven said the geological issues at Narrabri had increased the ash content of the coal it had sold, and lowered the energy content, due to “out of seam dilution”.
Despite its own woes, Whitehaven said the outlook for coal markets had brightened in the March quarter, despite the ongoing impact of Chinese bans on Australian product.
“Chinese import restrictions on Australian origin coal have continued in the March quarter. The import restrictions have negatively impacted prices for Australian origin 5500CV thermal coal and metallurgical coal. However, seaborne coal trade flows have adjusted with supply from Russia, Indonesia, Colombia and North America meeting Chinese demand,” the company said.
“In contrast, high CV thermal coal demand has strengthened during the quarter with demand recovering to pre-COVID levels. China supplemented its growing domestic coal production with coal from alternative origins including Russia, Indonesia and South Africa in response to higher thermal power demand.
“Japanese thermal coal imports rebounded in January and February to multi-year highs and Taiwanese thermal coal demand has increased due to subdued hydro-generation levels.”