By Jessica Wee
It has been another difficult month for global risk assets. This is now the worst first half of the year for developed market equities and government bonds in over 50 years. However, there is a sector which wasn’t sexy until the recent geopolitical conflicts and unprecedented economic undercurrents which have forced the sector into the limelight – i.e. COAL. This is primarily due to Russia’s reckless invasion of Ukraine and the subsequent U.S.-led sanctions have effectively shelved global energy resources. As a result, demand has skyrocketed as energy-dependent nations pay top dollar for pivotal commodities.
Of course, prices of all goods would have increased anyway due to rising inflation. In addition, the dramatic paradigm shift of no activity to robust activity following the fading of the covid pandemic exacerbated conditions in the energy market. With such heightened demand, every avenue of power generation is struggling, which cynically bolsters the case for coal stocks to buy.
Despite the environmental challenges of energy production by coal, coal plants do feature some of the lowest capacity factor ratings in the energy industry. However, what has kept coal stocks in the game is that while the intermittent sources of solar and wind are offline, metallurgically related plants can fill the gap.
With coal prices already running at historic highs, they have again tipped back to record territory. According to data from Trading Economics, Newcastle coal futures have rocketed back above US$430 per tonne. That’s within a whisker of the previous all-time highs set back in the first week of March 2022!
With other factors such as climate change impeding hydroelectric power sources, coal stocks simply represent a necessity at this hour. If you think the idea of buying coal stocks in the modern age is strange, you’re not alone. According to the Wall Street Journal, broader investments in metallurgical mining operations dwindled against expectations that coal would lose market share to renewable energy. Well, so much for that assessment ;(
Here are some of the coal related stocks for your reference. Some names are pure coal plays while others are more diversified and would provide a buffer in the event that the Russian-Ukrainian war ends earlier than anticipated.
Peabody Energy (NYSE:BTU), Consol Energy (NYSE:CEIX) , BHP Group (NYSE:BHP), Ramaco Resources (NASDAQ:METC) , Natural Resource Partners(NYSE:NRP), Hallador Energy (NASDAQ:HNRG) , NACCO Industries, Inc. (NYSE: NC), Alpha Metallurgical Resources, Inc. (NYSE: AMR)
Whereas in Australia, news emerged this week that the enforced ban in China on coal from Australian mines that has been in place since October 2020 could be reversed in the next two months.
The biggest coal names on the ASX started to jump. Take a look at Whitehaven Coal (ASX:WHC), Yancoal (ASX:YAL), New Hope Corp (ASX:NHC), Bowen Coal (ASX:BCB), Stanmore (ASX:SMR), Coronado (ASX:CRN), Terracom (ASX:TER), BHP (ASX:BHP), South32 (ASX:S32)
Alternatively, you could invest in coal ETFs if investing in single stock names is not your style VanEck Vectors Coal ETF (NYSEARCA:KOL).
As the world suffers price shocks and the cost of everything seems to move higher, these US and Australian stocks could be the answer to runaway inflation. Key qualities companies in our list need to not only survive but actively thrive when costs surge. Act fast – because in times of inflation, the worst thing you can do is to standstill.
