ASX coal shares are higher on Friday after an 0.51% bump in the thermal coal price overnight to US$147.75 per tonne, taking the commodity's value 9.04% higher over this week alone.
Today's thermal coal price is the highest since December last year. This is largely the result of increasingly strong demand from China and India.
However, thermal coal has an image problem these days. It's seen as a dirty source of energy in a decarbonising world.
And that's why superannuation company Australian Retirement Trust (ART) has announced it is officially blacklisting it.
The super fund already has no exposure to ASX coal shares involved in thermal coal production. So, the stock prices of major producers are unlikely to be affected by this move today.
Here is a snapshot of the big players and their performance so far on Friday:
- Yancoal Australia Ltd (ASX: YAL) shares are up 0.89% to $5.68
- New Hope Corporation Ltd (ASX: NHC) shares are up 0.64% to $4.71
- Whitehaven Coal Ltd (ASX: WHC) shares are up 0.38% to $7.87
Why this superannuation fund is banning thermal coal
As reported in The Australian today, Australia's second-largest superannuation fund will put thermal coal on its investment exclusion list from 1 July.
The fine print says the fund will ban direct investment in any company that generates more than 10% of its gross revenue from mining thermal coal.
It's doing this as part of its mission to become a net zero portfolio manager by 2050.
A spokesperson from Australian Retirement Trust said:
As a global investor, Australian Retirement Trust is committed to achieving a net zero greenhouse gas emissions investment portfolio by 2050.
Australian Retirement Trust applies exclusions in limited circumstances as part of its sustainable investment approach in accordance with members' best financial interest.
According to the article, ART is now the largest superannuation fund to ban thermal coal. It follows similar moves from other superannuation funds, including HESTA and UniSuper.
Brett Morgan, a campaigner from climate activist group Market Forces, said the superannuation fund already had no exposure to thermal coal but "has finally put its practice into policy".
While ESG-focused investors are shunning thermal coal for investment, many countries will need it for many years to come to provide one of society's most basic needs to function: electricity.
Analysis by Trading Economics explains why demand from China is increasing:
China, the world's top consumer, furthered policies to increase coal power generation to improve its energy security and counter increased geopolitical tension and foreign exchange volatility since the pandemic.
This contradicted the country's previous pledges to reduce power generation from coal plants, driving investors to believe China will continue to depend on coal.
China already announced plans to build an additional 70 gigawatts in coal power capacity his year, extending the 47 gigawatts built last year, and compared to only 3.7 gigawatts in retired plants.
What's the outlook for coal prices?
Thermal coal prices will fall and metallurgical coal prices will rise, according to the latest forecast from the Federal Department of Resources.
Thermal coal spot prices are expected to average US$135 per tonne in FY24, down from US$302 per tonne in FY23. The thermal coal price is expected to average US$115 per tonne in FY29.
Metallurgical spot prices are expected to average US$289 per tonne in FY24, up from US$277 per tonne in FY23. The metallurgical coal price is expected to average US$207 per tonne in FY29.
Should you buy ASX coal shares?
As we recently reported, top broker Goldman Sachs has a sell rating on specialist thermal coal miner, New Hope. The broker has a 12-month share price target of $3.50.
Whitehaven produces both thermal and metallurgical coal. It recently raised its exposure to met coal by purchasing two mines from BHP Group Ltd (ASX: BHP) for US$3.2 billion.
This led to several brokers reappraising the ASX coal share for investment. This included UBS, which upgraded Whitehaven shares to a buy rating with an improved target of $8.70.
Yancoal also produces a mix of thermal and metallurgical coal. It's my colleague Bernd's top stock pick for dividend income at the moment.
