[miningmx.com] — IT’S PROBABLY too early to panic, but reports coming from coal traders in various parts of the world might be starting to spook South African producers.
Recently coal export prices from Richards Bay Coal Terminal (RBCT) dipped to an average $84.80/metric ton – the lowest in more than five months.
There are a few possible reasons. Asia in general has cut coal imports, partly for weather-related conditions: severe floods in China and the monsoon season in India.
But tracing the trader reports a little further back it’s a trend that’s been in place for a while. The East is importing less and demand has surged in Europe. But the volumes exported from RBCT to both regions make the comparison just about meaningless.
Even with coal imports trending down, China and India consume far more coal than Europe.
It’s not good news for SA’s coal exporters.
They face enough problems as it is: from an erratic rail link to the still-awaited next expansion phase at RBCT. Meanwhile, Maputo is beckoning and some coal exporters are taking a serious look at its facilities.
But all the above could offer an opportunity for investors. SA’s coal-mining companies have mixed fortunes. But the ones that are running are really running. For example, WESCOAL HOLDINGS LIMITED is on a historical earnings multiple of 28.4 times and KEATON ENERGY HOLDINGS LIMITED an outrageous 85.7 times.
Despite the perennial problems, consolidation and long-term (very long term) ecological move against dirty coal energy, coal mines can be great investments – if you get them at a decent price. Further export price weakness might just restore some reality to the share prices of the top coal-mining companies.
The eloquent and often outspoken Michael Power, strategist at Investec Asset Management, has specific views on resources exports in a new report. It must be pointed out he’s talking about all resources exports, not just coal.
CHOOSING A BANDWAGON
But coal can probably be classed as one of the big three (with oil and iron ore). Power says the term “decoupling’ – out of favour since it didn’t really happen to financial markets following the 2008 credit crunch – is in fact what happened. “If you look merely at the macroeconomic performance of the global economy, decoupling is indeed a fair description of what happened.
The world has divided itself broadly into two economic tracks: the fast one led by the locomotives of China and, to a lesser extent, India, versus the slow one, headed by the Puffing Billies of the United States, Europe and Japan.’
SA is an export-led truck under that classification, a description local coal mines will be happy with. But despite huge coal volumes exiting RBCT for China and India, the mines joined the train late.
Says Power: “SA has up till now for the most part chosen to ride the wrong train despite our resource-rich export profile.’
He offers some reasons that will have the ANC critics of our colonial past jumping up and down with joy. But the following paragraph sums it up:
“The sooner we abandon the Old World train and hitch ourselves to the New One – in other words, see ourselves for what we are in SA and for what we can become, rather than some faux-European outpost adrift in the southern hemisphere – the better it will be for our collective future.’
Well, the coal mining companies now do seem to be on the right train and there’s little point in looking back. Investors should track coal company share prices with further declines in export prices. Some rare buying opportunities could open up.
– The article first appeared in Finweek
