As the all-mighty iron ore price rally is running out of puff, brokers are getting excited about another commodity!
Greenies should cover their ears. The commodity in question is coal and its bull run is partially fuelled by the devastating floods in New South Wales.
The 100-year natural disaster disrupted supply lines to the port of Newcastle, which is the largest coal export port in the world.
Coal prices are firing up
But coal prices were already on the rise even before the wild rains. UBS noted that coal shipment volumes have been weak since the start of 2021 and is predicting thermal coal prices to jump over US$100 a ton. It's current trading around US$87 a ton.
"The fall in coal shipment volumes YTD is led by South Africa (-23% YTD due to Transnet rail issues exacerbated by heavy rains & COVID-19), Australia (-8% YTD), Canada (-8% YTD) & the US (-6% YTD)," said UBS.
"Last week (ending 21-Mar), coal shipment volumes are -23% y/y, which is materially weaker than the prior week (which was +1% y/y).
"Overall shipments YTD are still tracking below the average level in 2017-19."
Accidental carbon reduction
While rail lines to the port of Newcastle are partially reopened, the broker is expecting Australian supply to remain tight, at least in the near-term.
"Shiploading has also been suspended for 2wks at the NCIG terminal at Newcastle (capacity 66Mt) after faults were identified on shiploader #1," added UBS.
"This follows the suspension of shiploader #2 at NCIG in Nov-20 for 6-12mths due to wind[1]damage."
ASX miners most affected
But rising coal prices are a mixed blessing. Miners can only capitalise on high commodity prices if they can ramp up supply.
The broker estimated that shipments from the Newcastle Coal Infrastructure Group (NGIC) are down a whopping 68% week-on-week.
The ASX coal miners most impacted by the disruption are the Yancoal Australia Ltd (ASX: YAL) share price and BHP Group Ltd (ASX: BHP) share price.
This is followed by the Whitehaven Coal Ltd (ASX: WHC) share price, according to UBS.
Challenges in capitalising on high coal prices
"There are currently ~40 ships queued at the Port of Newcastle," said UBS.
"We note limited scope for Canada, South Africa & other regions to lift supply, so thermal coal prices are set to remain elevated near-term."
It's worth noting that the South32 Ltd (ASX: S32) share price could benefit the most from the NSW floods if it manages to ship more of its coal from its South African mines.
