ASX coal shares have rallied hard during 2022, emerging as one of the top performing share baskets on the market.
The price of coal has been somewhat of an anomaly these past few weeks. Coal has held onto its gains of the past year while most other commodities have turned to the downside.
The black rock now trades at US$410 per tonne, around 174% higher than it was 12 months ago. Newcastle coal futures have soared even higher than that.
The graph below illustrates the movement of the Newcastle coal futures price, along with the share prices of major ASX coal producers Whitehaven Coal Limited (ASX: WHC), New Hope Corporation Ltd (ASX: NHC), and Yancoal Australia Ltd (ASX: YAL).
Can the rally be sustained?
According to a recent research note from investment bank Macquarie, the current premium attached to coal pricing is "fundamentally unsustainable".
The broker reckons prices will gradually revert back to respectable levels, as metallurgical coal makes its way into the thermal coal market.
Furthermore, Macquarie says a recent selloff in coking coal markets that's seen the price of coking coal plunge from US$530/tonne to US$230/tonne from June to date is "fundamentally justified".
The broker said:
In our view, while the coking coal price drop since May is fundamentally justified by the worsening demand outlook, the selloff is starting to look overdone for a market still facing a structural deficit.
Despite this, Macquarie also reckons there is still upside potential for the market as investors buy in at the lows.
Meanwhile, governments in Europe have recently announced the return to service of several coal-fired power stations, according to Refinitiv Eikon analysis.
The decision has pushed the EU to revise its expectations on coal consumption in Europe over the short to medium term, it said.
Analysts added:
We expect the magnitude of the impact on Germany's coal consumption will be most pronounced in the winter months of 2022 and 2023, and potentially also the following winter.
The news could be positive for ASX coal players such as Whitehaven, Newhope, and Yancoal.
All three of the ASX coal giants are set to report their full-year earnings soon, where we will also get a glimpse into FY23 guidance.
