Despite China’s best efforts to curb output capacity and increase their overall coking production by 29.655 million mt this year, the country is still set to face a met coal deficit for 2021.
Reports have indicated that this deficit will be close to approximately 50 million mt of met coal, consequently forcing an explosion in domestic prices.
The shortage has seen a 45% increase in China’s domestic coal prices between August and September.
Currently, premium low-volatile coking coal from the Shanxi province costs US$626/mt.
The surge in domestic prices has done little to deter China’s demand for coal, as close to 70% of their electricity is powered by fossil fuels.
With Chinese prices skyrocketing and demand increasing, Coronado Global Resources and Tigers Realm Coal are on track to benefit, and here’s how.
Trade Difficulties with Australia
In 2019 Australia exported AU$13.7 billion worth of coal to China.
However, China decided to stop importing thermal and coking coal from Australia last year, following increasing political tensions between the two nations.
The decision had a massive hit on Australian mining companies and led to a distorted coal market, consequently leaving China to search elsewhere for their met coal needs.
To see how the market is still recovering from China’s decision, check out this list of Australian mining companies.
Coal coking companies outside of Australia have now enjoyed the steady demand for their met coal resources and profited off surging domestic prices.
Despite having projects in Queensland, Coronado Global Resources operates out of the US and, therefore, can continue their business with China.
Meanwhile, Tigers Realm Coal operates out of far east Russia and enjoys the security of friendly diplomatic relations between Putin and China.
Mongolian Port Closure
The closure of Mongolia’s largest land border port for importing coal has been a significant blow to China’s limited met coal supply.
Following an outbreak of COVID-19 in late August, the Ganqimaodu port in inner Mongolia was shut down, consequently disrupting China’s met coal imports.
The port closure has contributed to the surging prices of met coal in China, leading to promising returns for mining companies.
Coronado Global Resources and Tigers Realm Coal have significantly benefited from China’s supply disruption in the past month.
Within a month, Coronado Global Resources has jumped 30.5% in its share price.
Currently sitting at an AU$2.24B market cap, the company has indicated in an H1 report that they will continue to benefit from China’s high prices by the close of this year.
Meanwhile, Tigers Realm Coal doubled its revenue to $14.765 million at the end of the last financial year, thanks to China’s booming coal import market.
The company has an AU$196.00M market cap and is set to benefit this upcoming quarter due to increasing premiums for coking coal.
Ultimately, China’s met coal shortage has pushed the significant growth of these two mining companies and led to them being key players to watch on the ASX.
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