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The energy coal market is SUPER hot right now?!

by , 23 June 2022
The energy coal market is SUPER hot right now?!
A year ago, banks were saying they don't want to finance coal mine development any longer.

European countries were closing down coal power plants.

It looked like there was little interest in the commodity going forward.

But now the price of coal is booming.

In October last year a ton of export coal sold for around $90.

Today it sells between $300 and $400!

That's a big change…

And there's increasing demand for coal as the Russia/Ukraine war continues…


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Soaring coal demand in Europe could prove great for South African coal miners

The Netherlands, Germany and Austria shuttered many coal power plants over the last decade as these countries try to reduce their reliance on greenhouse producing fuels…

But the soaring lack of alternative gas supplies, as well as the difficulty in transporting it is forcing these European countries to re-evaluate their positions.

The Netherlands said it would lift all restrictions on power stations fired by the fossil fuel, which were previously limited to just over a third of output. Berlin and Vienna made similar announcements as they faced shortages of gas supply due to sanctions against Russia.

Germany must reduce natural gas consumption and increase the burning of coal to help fill gas storage facilities for next winter says German Economy
Minister Robert Habeck. (a Green Party politician in the center-left ruling coalition)

Habeck, announced a return to "coal-fired power plants for a transitional period" to reduce gas consumption for electricity production. The Germans plan on starting up as much as 10 gigawatts of idle coal-fired plants for the next two years. This despite Germany's plans to exit coal-fueled energy production

To exacerbate the problem – Germany’s last three nuclear plants producing 4 gigawatts of electricity are scheduled to be shut down end of 2022.

Denmark has also initiated the first step of an emergency gas plan due to the Russian supply uncertainty.

Italy moved closer to declaring a state of alert on energy after oil company Eni said it was told by Russia's Gazprom that it would receive only part of its request for gas supplies this week.

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Coal demand will keep mines profitable for longer

Because of this situation most countries that committed to phasing out coal this decade, are pushing out their plans into the 2030s.

While I am certainly excited about the use of renewables like wind and solar – they simply aren’t base load solutions right now. Coal power is still much needed. And this current crisis shows why…

Until another solution, like safer baseload nuclear can be implemented, I expect we will see this increased demand for coal carry on.

And with a lack of new coal mines coming online in the past decade – this will certainly boost sales for coal mines that are operating well right now.

BHP planned on selling its Australian energy coal business, and has since announced it will retain it, and plans on mining till at least 2030.

Glencore is on course for group ebitda (earnings before interest, tax, depreciation and amortisation) of $29bn for 2022 of which coal comprises around 36% ($10bn), said JP Morgan Cazenove in a recent report. At spot, however, ebitda is more like $40bn of which coal is half.

“We expect coal prices to remain higher for longer due to the Russia/Ukraine conflict and for this to underpin exceptional cash returns by Glencore over the next one to two years,” according to UBS analysts, Myles Allsop and Daniel Major.

In South Africa there are a number of options if you’re looking at coal miners…
Firstly there’s shares in BHP, the Glencore, Thungela, Salungano, Sasol (even though it uses coal for fuel) and Exxaro. Both South 32 and Anglo American no longer producer energy coal, but only metallurgical coal.

Even though coal isn’t a favoured commodity – for the next two years it will be highly profitable. And perhaps even for longer.

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The energy coal market is SUPER hot right now?!
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