Coal mining equities are undervalued as the coal price environment is presently “strong but range-bound”, that’s the view of analysts at Jefferies.
Jefferies, in a note, said that the recent cold spell in the Northern Hemisphere saw a reversal towards the end of December and into the New Year, which led to a decrease in coal demand.
“Europe has experienced winter heat records over the past two weeks, and temperatures in the United States have also been well above normal for this time of the year.
“Due to this, natural gas prices have sharply declined.
“Despite this, the Newcastle benchmark coal price has remained high at near $400/t due to strong demand in Asia, which has helped to offset weaker demand in the US and Europe.”
Elsewhere, Jefferies noted that in Asia low temperatures in Asia have seen stronger demand for Indonesian thermal coal, and, in Australia, weather-related supply disruptions have been subsiding though the Newcastle thermal coal price has remained strong.
Jefferies expects that, barring any new weather disruptions or extreme cold spells, the commodity market fundamentals will support a marginally lower, but still very high, Newcastle price in the coming months.
Whilst the bank’s analysts see equities as undervalued, Jefferies didn’t pinpoint specific stock picks.
Deutsche sees Glencore as a ‘buy’
Elsewhere in the market, however, Deutsche Bank gave a bullish write-up of Glencore PLC (LSE:GLEN) proposition.
Glencore remains a 'buy' for Deutsche Bank, though it concedes the best of the recent coal/energy windfall might be behind the mining titan.
Even so, analysts at the German bank like the story for three reasons:
“Sector leading cash generation and shareholder returns in 2023/24, even as coal prices moderate.
“Glencore is also the world's largest producer of base metals and this part of the business remains undervalued.
“The marketing business is a real differentiator, providing strong cash generation through the cycle; global trade frictions should keep earnings elevated and the potential divestment of the Agri unit could evolve as an interesting catalyst over the next 12+ months.”
Buy with a 575p target, moved up from 560p, is Deutsche’s view. Shares were down 1% today at 536.3p.