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Coal prices have soared with supply chain disruptions, the Chinese trade war with Australia and material shortages. By September 2021 thermal coal price have tripled from a year ago seeing Glencore's ebitda run rate soar with prices.

Thermal coal China

Glencore has benefited from the soaring coal price more than it's peers, Rio Tinto, Anglo American, BHP, South32 and Vale as they have divested coal assets to improve ESG grades, whilst $GLEN  haven't. Glencore is one of the world’s top coal producers, with output this year projected at 104 million metric tons.

A series of supply shocks from a lack of mine investments among other things are attributable to the coal price surge along with the strength in natural gas prices. Domestic coal supply disruption started from the anti-corruption campaign in Inner Mongolia last year, followed by a few rounds of heightened safety inspections and environmental checks. From there we have seen a record cold winter, a showdown with Australia who are the biggest coal exporter in the world and the CCP trying to implement emission standards.

Thermal coal, which is used mainly by utilities to produce electricity has seen prices triple to about $200 a metric tonne in Australia. Glencore has sizable operations in Australia and produces thermal coal and metallurgical coal, which is used to make steel.

ICE NewCastle Coal Oct '21 (LQV21) 210.50s +2.80 (+1.35%) 09/29/21 [ICE/EU]

ICE Newcastle Coal 9 29 2021

Coal Kicker

Jefferies analyst Chris LaFemina in a client note titled the “Coal Kicker,” estimated Glencore's annualized Ebitda run rate on spot coal prices for the company's coal business has increased to $9.1 billion today from $1.3 billion in August 2020 wih the prices having tripled during the period. On a mark-to-market basis, the company's annualized Ebitda has increased to $24.3 billion from $21.8 billion since early August 2021, the bank estimates.Conversely, Ebitda projections for other major miners fell materially over this period due to the rapid declines in iron ore prices.

LaFemina has a Buy rating and a price target of 425 pence for Glencore’s U.K.-listed shares, almost 30% above the recent price of 330 pence. Glencore’s U.S.-listed shares (GLNCY) are up 25 cents at $9.24.

Chinas Power Rationing 21 9

In china 12 provinces have identified coal supply shortage as the key reason behind for power rationing or rolling blackouts. In the three provinces in northeast China. Liaoning, Jilin and Heilongjiang, in particular, even residential power usage is affected, a rare occurrence for a country putting household energy supply in a prioritized category. For most provinces, industrial power rationing remains the key measure a report by IHS Markit said.

Thermal Coal Futures China 9 29 21

Glencore’s former CEO Ivan Glasenberg said earlier year: “Disposing of fossil-fuel assets and making them someone else’s issue is not the solution and it won’t reduce absolute emissions.”

On its website, Glencore says: “Coal is an important part of our global commodity portfolio and we are focused on running a profitable business in a safe, efficient, responsible and sustainable manner.”

Returns to coal producers are rising with many companies seeking to exit the business regardless of price.

Source: Jefferies, IHS Market

From The TradersCommunity Research Desk

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