Whitehaven Coal Thrives Amid Rising Coal Demand

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Whitehaven Coal Thrives Amid Rising Coal Demand

  • Beijing backflips on October 2020 coal ban, unloads up to 1 million tonnes of Australian coal
  • Whitehaven FY21 Net Loss After Tax (NLAT) of A $543.9
  • Whitehaven share price up 92.61 per cent from June lows of A $1.25 per share

Real and lasting change hardly ever happens overnight. In the case of the still-unfolding global effort to decarbonise fossil fuels industries, real and lasting change is expected to involve a hard pivot towards greener, more renewable forms of energy. This is a hard-fought struggle that sees its beginnings with governments having to accept the hard truths of the climate crisis, but also from trade tensions sparked between Beijing and Canberra from as early as 2018.

Escalating trade tensions between Australia and China became more pronounced with Australia banning Huawei from developing its 5G network in 2018. Since then, trade disagreements have seen China imposing restrictions on a number of Australian exports — with Australian coal being among the latest facing restrictions at the end of 2020. While mounting trade tensions were seen to be the primary reason for Beijing’s dismissal of Australian coal, the decision was also seen as moving in line with China’s efforts to decarbonise its steelmaking industry.

However, recent reports have seen Beijing backflipping on its coal ban, in the face of a looming domestic power shortage ahead of the coming winter. Australian cargo loads of coal, stranded outside Chinese ports since late 2020 have been seen to berth and unload their stock — with a near 1 million tonnes of coal known to be discharged so far. The unofficial end to Beijing's ban on Australian coal has seen astronomical price surges in the spot price of coal, from lows of US $71.80 in April to US $232.65 on 4 October. Unsurprisingly, desperate times call for quick action, and an energy-scarce China is not picky when it comes to accepting the Australian coal that’s been waiting at its shores.

A Sudden Reversal of Huge Demand, with Massive Spillover Effects

China’s consumption of coal accounted for 58 per cent of the world’s total coal consumption in 2019. The sudden ban on Australian coal imports would no doubt have produced drastic effects upon the coal industry — producing a likewise effect as its ports now begin to unload Australian coal. Spill-on effects from China’s coal ban in 2020 have not only affected its domestic energy production, but have also seen a drop in coal supplies in India, which has been known to purchase onsold coal from China. Resultantly, investors may find it an opportune moment to reassess their expectations of Australian coal producers such as Whitehaven Coal Limited.

Whitehaven reported FY21 results with earnings before interest, tax, depreciation, and amortisation of A $204.5 million, and a NLAT of A $543.9 million. The company attributes its NLAT to decreased realised prices of the coal it produced during this reporting period, as well as decreased production within its Narrabri facility.

Part of its focus to reduce debt, manage its capital and deliver shareholder returns for FY22 sees the company seeking to optimise the productivity of its Maules Creek fleet, and output of its Narrabri facility. However, the recent spike in spot coal will certainly factor into Whitehaven’s profit outlook for the coming year. At the time of writing, the company’s share price is up 242.42 per cent over the past year.

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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