Why is the New Hope (ASX:NHC) share price sinking 5% on Wednesday?

The coal player’s shares have been on the march down south lately.

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The New Hope Corporation Limited (ASX: NHC) share price is sliding into the red in afternoon trade and is now changing hands at $2.37, down 5.58%.

New Hope shares have been on the march down south over the past week, despite there being no market-sensitive information for the company in that time, or today.

Here we dive in to understand what’s fuelling this price action in the last few days.

What headwinds are in front of the New Hope share price?

Shares in the coal exploration and development company have come off a previous closing high of $2.67 on 11 October.

This came after a strong run from 20 September, when they broke out and reversed from a downturn that saw the company’s share price last bottom out at $2.06.

So it may come as a surprise to some as to why investors have instigated such an abrupt downturn in New Hope shares in the last few days.

In the absence of any market-sensitive information out of New Hope’s camp lately, we have to look to the underlying commodity markets to help explain this pricing activity.

One of, if not the main activity in New Hope’s repertoire is the exploration and development of coal in Australia, to which it produced 9.6 million tonnes in FY21.

The price of coal has soared over 300% in the single-year period to date, in line with broader commodity markets that are each running hot at the moment.

Coal pricing recently took off again at month’s end in September, spiking US$88/tonne or around 50% in roughly two weeks.

This most recent rally was extended by tightening supply and oversubscribed demand for the black rock, as wild storms forced the closure of around 60 coal mines in China’s most productive coal hub – Shanxi province – and freezing temperatures in China and Europe caused power plants to stock up on inventory to avoid deepening the energy crisis already in situ for both jurisdictions.

What does this mean for investors?

New Hope is an ASX resource share that produces a commodity – in this case, coal. As such, it is considered a price taker, that doesn’t really have much say on what markets it can sell into, and what prices it can command on its product.

That command is often determined by the forces of supply and demand, as has been explicitly observed in the coal markets lately.

Coal peaked at US$269.50/tonne on 5 October, before marching back down south to now trade at US$229.9/tonne. That’s a 14% dip in about 2 weeks.

In light of this relationship, coupled with the recent downturn in coal pricing over the past 15 days, we start to understand what might be weighing in on the New Hope share price.

The pricing weakness appears to have wrapped its tentacles around other ASX coal shares lately as well, with fellow coal heavyweights Whitehaven Coal Ltd (ASX: WHC) and Yancoal Australia Ltd (ASX: YAL) shares slipping 8% and 11.5% in the last week, respectively.

New Hope share price snapshot

The New Hope share price has climbed 68% this year to date, extending its run into the green by 109%.

These results have outpaced the S&P/ASX 200 index (ASX: XJO)’s return of around 19% in that time.

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The author Zach Bristow has no positions 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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