By Tim McArthur - June 23, 2014
Fortunes have been made and lost in Queensland’s Bowen Basin and NSW’s Hunter Valley. Billionaire miner-turned-politician Clive Palmer still has his fortune intact thanks to his diversification strategy which has meant he’s enjoyed cash flows from numerous commodities and not just coal. Meanwhile reports suggest Nathan Tinkler’s fortune has been seriously squashed as a result of the coal price plunge.
In the six months to December 2013 hard coking coal prices fell around 36% compared with the prior corresponding period, and although the rate of decline has slowed during the current half, prices remain under pressure.
Commodity prices move in cycles and the question for coal investors now is – can things get even worse or are we nearing the bottom of the cycle?
While it’s very hard to be certain and know for sure when a bottom has been reached, here are three reasons to be positive about the future prospects for coal from this point on:
1.Wesfarmers Ltd (ASX: WES) and Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) both see a long-term future for low-cost coal miners. They’ve got their money where their mouth is, with each firm having significant stakes in coal mining operations. For investors wanting a less-risky exposure to the potential upside in the coal price, Wesfarmers and Soul Patts could be a safer, more diversified way to play the theme.
2.Major coal miners such as New Hope Corporation Limited (ASX: NHC) and WHITEHAVEN COAL LIMITED (ASX: WHC) are trading at six year and five-year lows respectively – at these levels the risk-reward trade-off is beginning to look favourable.
3.Coal demand in Asia could be set for a rebound. A recent report in the Australian Financial Review quoted the executive director of the International Energy Agency (IEA) as saying:
“High LNG [liquefied natural gas] prices are threatening to crimp demand as many countries are increasingly unwilling, or unable to afford these supplies – and that could open the door to coal. Unless we see timely investment in new production and LNG facilities and the reversal of the recent cost inflation of LNG, only a very strong climate policy commitment could redirect Asia’s coal investment wave to gas.”
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