The coal world is ‘restoring its price hierarchy’, as the costs for metallurgical coal are soaring, while those for thermal coal are under pressure, according to a research note issued by Liberum.
The difference in pricing is due to the steel industry in Asia coming out of winter and looking for raw materials, while power-gens are stocking up before the next shoulder season, the City broker said.
The price of top-grade thermal coal has been consistently priced above all met-coal products, a deviation from the seaborne's old pricing custom, however, this trend is changing, it added.
Unusual shift
Since mid-2022, the coal prices have experienced an unusual shift in their usual hierarchy, due to the impact of China's covid-hit steel industry and Australia's coal import ban on met-coal prices, and a war-related spike in thermal coal prices.
While all coal prices are still higher than historical levels, they are slowly moving towards more conventional levels, Liberum told investors.
Both coal markets are expected to ‘have robust trade’, which will help pricing normalise. The biggest risk to a full recovery is the year-end ex-Russia gas and coal buying in Europe, said the Liberum research note said.
The price of metallurgical coal's three key generic products, hard coking, low-volatile pulverised coal injection, and semi-soft, have seen a 30-40% increase from December 2022 lows and are now priced between $280-$350/t ‘free onboard’.
On the other hand, many of the key seaborne thermal coal prices have declined 5-50% over the same period. Newcastle 6300cv forwards reported a large correction on the one-month price, which caused a dip in the price levels, the Liberum research pointed out.
Sudden change
It added that the sudden change in coal pricing serves as a reminder of the unpredictability of the commodity market and the importance of monitoring trends closely. Investors and market participants should take note of the current pricing trends and adjust their portfolios accordingly.
Despite the challenges, the coal market offers many opportunities for those who understand its dynamics and can navigate the risks, Liberum said.
For those looking for equity exposure in the thermal coal market, Liberum suggests Glencore PLC (LSE:GLEN) (buy, target price 685p) and Thungela Resources Ltd (buy, target price 1895p).
Liberum suggests selling BHP Group Ltd (LSE:BHP, ASX:BHP). (target price 2130p) and Anglo American PLC (LSE:AAL) (target price 2,725p).