Here’s why the New Hope (ASX:NHC) share price is climbing 7% today

Unlike iron ore or copper, coal prices are booming to all-time highs.

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Group of smiling coal miners in coal mine owned by Whitehaven Coal Ltd

Image source: Getty Images

The New Hope Corporation Ltd (ASX: NHC) share price is rallying on Wednesday, up 7.44% to $2.31.

Sell off? What sell off?

China’s Evergrande crisis rattled the global equity markets on Monday, dragging the S&P/ASX 200 Index (ASX: XJO) 2.10% lower to a 3 month low of 7,248.2.

New Hope also took the brunt of the selling, sliding 8.04% to $2.06.

Encouragingly, its shares have displayed a V-shaped recovery, surging 12.1% since its $2.06 close on Monday.

What’s driving the New Hope share price?

Coal prices have boomed to all-time highs of US$179 per metric tonne, supported by surging demand for electricity and power across China and India.

In the case of China, policymakers have been tightening environmental controls for the coal industry since March, according to S&P Global. The strict monitoring of its domestic coal operations has slowed down output capacity, driving a sharp decline in supply.

In addition, officials in China’s Shandong province are planning to shut down 27 coal mines with under 300,000 metric tonnes a year of output capacity between 2021 to 2022, further squeezing domestic supply.

In a separate report, S&P Global cited the tightening supply of coal was taking place on a global level, resulting in “lower spot transaction volumes, pushing the coking coal market higher”.

“Ex-China spot demand for seaborne coking coal increased by about 280% on the year in [the] first half of 2021.”

Another factor that could be driving the New Hope share price is the release of its FY21 full-year results on Monday.

The company delivered a major turnaround with a net profit after tax of $79 million compared to a $157 million loss in FY20.

New Hope CEO Reinhold Schmidt was pleased with the company’s performance and outlook for coal.

The Newcastle 6000 Index hit 10 year highs by financial year end, rapidly recovering from the depressed market conditions experienced at the start of the financial year.

The Company achieved an average realised price of $101.36/t in 2021. At 31 July 2021, the Newcastle 6000 Index had almost doubled from January 2021 levels, to USD$150 per tonne, and has continued to trend upwards.

Should you invest $1,000 in New Hope right now?

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Motley Fool contributor Kerry Sun has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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