Target $9.36, page-986

In response to a few posts about future coal prices/mothballed mine sites.

Investors are not going to be eager to invest hundreds of millions to bring coal mines back to life which they know are unpopular in the political and social landscape. It makes no long term economic sense when they weight the fact that in a few years, when power stability returns, the coal will be again condemned by politicians due to social pressure.

For this reason the coal industry has experienced huge underinvestment over the last 10 years and we can see this in the disparity between oil price highs and coal price highs.

In the 2011 to 2014 cycle the peak oil price was around $100 per barrel while coal was around $120 per ton.
In 2018 oil peaked at $80 per barrel while coal again reached $120 per ton.
Now we have oil at $115 per barrel while coal is at $390 per ton.

The difference is huge and reflects that the coal sector is much tighter than oil even though they move together. While oil reserves are tight theyre is some spare capacity that can be brought to market, while coal right now is being mined as fast as the rail/port can accommodate. Bringing new mines into service also needs new rail and port infrastructure.

Lack of investment is also due to banks not wanting to lend to the industry. History of under performance in the sector has also led to little or no investment over the last 10 years. Government would have to nationalise the mine sites which is no easy undertaking and would contradict most state policies for net zero.

Basically, for new supply to come online successfully, investors would need to be confident that price stability and profitability would be guaranteed in the medium to long term to warrant opening a coal mine. We are a few years away from seeing this happen and until then its a self fullfilling prophecy that lack of investment will hold prices high and show strong profitability to existing producers and thus warrant investment. Although unlikely, public policy would also need to change to accommodate this.

In terms of recession risk, coal is largely insulated. Powering a nation out of a recession requires power, and coal is, even at these prices the cheapest way of doing just that. I believe we will see even greater profitability for the sector and higher coal prices when we reach the other side of this recession in a few years and economic activity increases along with power consumption.

Another point, Russian conflict in Ukraine is only starting, greater trouble is ahead unfortunately and historically oil is the blood of the war machine. Coal price will trend further upward with this. Russias actions are somewhat reminiscent of Italys invasion and conquest of modern day Ethiopia in the 1935s and how the then "allied powers" reacted to it and the things that followed in the 9 years after that. Energy security played a critical role.