S&P/ASX 200 Index (ASX: XJO) coal shares have delivered some stellar returns to investors this year.
Coal stocks largely have soaring thermal and coking coal prices to thank for that outperformance.
Coking coal, if you're not familiar, is mostly used in steel production.
Thermal coal is most broadly used to generate electricity.
Thermal coal prices, in particular, have been spurred far higher by Russia's invasion of Ukraine, as European and other nations are turning elsewhere for their energy needs.
That saw the Newcastle coal price (thermal) hit all-time highs of US$440 per tonne back in early March. Today it's still trading for a heady US$387 per tonne.
As you'd expect, this has offered some gale-force tailwinds for ASX 200 coal shares.
How have the big Aussie coal producers been tracking?
To put some numbers on it, the ASX 200 is down 10% in 2022.
As for the ASX 200 coal shares:
- Yancoal Australia Ltd (ASX: YAL) shares are up 98%
- New Hope Corporation Limited (ASX: NHC) shares have gained 172%
- Whitehaven Coal Ltd (ASX: WHC) shares have leapt 256%
Of course, if the coal price retraces, so too will those helpful tailwinds.
And in estimates put out in the federal budget this week, government analysts believe thermal coal prices will fall to $US60 per tonne by the end of Q1 2023.
The budget also forecasts that coking coal prices will fall to $US130 per tonne (FOB Australia) by that time.
Commonwealth Bank of Australia (ASX: CBA), however, has a more bullish take for ASX energy share investors.
ASX 200 coal shares could keep the good times rolling
"We think that the Government's forecasts for Australia's key mining and energy commodities in the coming years are broadly too conservative," CBA said in its Economic Insights report.
"Our main point of difference is the timing of when prices will normalise from the disruption to Russian commodity supply following the Ukraine conflict," the bank noted. "We think prices will take longer than that to normalise, especially for commodities that Russia is a key supplier in."
That longer delay in normalising prices would come as good news to ASX 200 coal shares.
According to the report:
The Budget's coking coal price view is markedly lower than our view from 2022/23 to 2025/26… We think the disruption to Russian coking coal exports (~10% of the seaborne market) will take years to replace fully, helping keep a premium entrenched in coking coal prices over the Budget's outlook period.
CBA has a similarly divergent view on the outlook for thermal coal, from which ASX 200 coal shares derive a large portion of their revenues.
The report noted:
The Budget's outlook for thermal coal is significantly lower than our forecast in the outlook period… Like coking coal, we see the disruption to Russian thermal coal exports (~15% of the seaborne market) to be more long-lasting than the Budget over the outlook period. Replacing Russian thermal coal exports in the seaborne market will be challenging given the underinvestment in the sector over the last few years.
