S&P/ASX 200 Index (ASX: XJO) coal stocks could be set for more outperformance, as a dearth of wind Down Under led to a resurgence in coal-fired power in the June quarter.
While the coal miners are putting in a mixed performance today, they've broadly been a tear over the past year.
What kind of a tear?
Well, over the past 12 months, the ASX 200 has gained 11.3%.
Here's how these ASX 200 coal stocks have performed over this same period (excluding some very juicy dividend payouts):
- New Hope Corp Ltd (ASX: NHC) shares are up 5.4%
- Whitehaven Coal Ltd (ASX: WHC) shares are up 35.5%
- Stanmore Resources Ltd (ASX: SMR) shares are up 59.3%
- Yancoal Australia Ltd (ASX: YAL)* shares are up 54.9%
(*Note: Yancoal is not an ASX 200 coal stock just yet. But with its market cap now at $9.7 billion, compared to $3.5 billion for Stanmore, I expect it will join the benchmark index in an upcoming quarterly rebalance.)
More turbines, less wind power
Despite the construction of more windmills, the June quarter saw a big decline in wind-driven electricity delivered to the Aussie market.
According to UNSW senior research associate Dylan McConnell (courtesy of The Australian Financial Review), wind power generation across the National Electricity Market (NEM) plunged 19.8% over the quarter just past.
But in good news for ASX 200 coal stocks, if not for Australia's net zero ambitions, coal power went the other way, up 6.5%.
Commenting on the uptick in coal-fired electricity, Global Power Energy's Geoff Eldridge said:
Coal and gas outputs have generally increased, reflecting a continued reliance on traditional energy sources to maintain grid reliability. Meanwhile, renewable energy sources such as utility wind and utility solar have faced declines due to seasonal challenges.
Independent consultant Matthew Rennie added, "Renewables are neither being built as quickly as we need them to be nor is transmission being constructed as quickly as required."
What are the experts saying about ASX 200 coal stocks?
With renewable sources lagging in the race to provide reliable baseload power in Australia and much of the developing world continuing to roll out new coal-fired power plants, the demand picture for thermal coal remains solid over the medium term.
ASX 200 coal stocks are also likely to see strong ongoing demand for the higher-quality coking or metallurgical coal they dig from the ground.
In fact, Morgan Stanley lists metallurgical coal as its top commodity pick. According to the AFR, the broker forecasts coking coal prices will hit US$290 per tonne by the end of 2024, up 15% from current levels.
That bullish forecast is based on an expected rebound in demand from India, the world's most populous nation. However, supply disruptions have also occurred, as several major coal mines — including Anglo American's (LSE: AAL) Grosvenor metallurgical coal mine in Queensland — have been shuttered following underground fires.
Morgan Stanley has an overweight rating on Yancoal and Whitehaven shares.
Glenmore Asset Management portfolio manager Robert Gregory is also bullish on the outlook for ASX 200 coal stocks and some of the smaller miners.
According to Gregory:
The really attractive part about all these coal stocks is that even at a reasonably low point in the price cycle, they're still generating very material profits and paying dividends.
So the set-up is really positive in that when we get a recovery in coal prices, which I think is inevitable at some stage, then they're poised to produce some very good earnings and hopefully get a re-rating as well.
