Research

Last Leg For Coal?

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Algo Research Team

Industry | Nov 02, 2022 | Views: 30

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Key Summary:

  • Newcastle coal futures down to $360 from $440 (-18%)
  • Should a sustained downtrend in price continues, we think peak coal sector trade is here
  • Upcoming catalyst is likely only dividend season

Let us first say that we are cheering for the coal sector and stocks to continue its upward trajectory, after all, this is the sector that ticks all the boxes: solid earnings, cheap valuation, positive momentum and decent liquidity. But, though maybe a bit too short-term, the share price has declined this past week around -4-7% despite very good readings by ADRO and HRUM where their 3Q22 earnings result were a beat above consensus estimates. We wonder why?


First, is it the spot price? -18% decline in spot NFC in the past week or so might be one of the reasons driving down coal stocks with negative sentiment. However, shouldn't this be sort of expected? After all this is a commodity with high volatility as seen this year with more than +/-20% swing in spot price. Winter in China is also near, only 1 month away, and this typically brings up higher coal prices from heating demand. Or perhaps looking at -1-5% QoQ decline in ASP for ADRO and HRUM in their 3Q22 led to traders fleeing the sector by assuming it was peak in 2Q22?

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