We’ve spent a lot of time on this blog talking up renewables. They are growing, and exponential series are kind of hard to wrap your head around, given just how quickly (by definition) they move. We often post graphs like this, showing that much of the world is moving away from coal, which do look compelling.

However it is also clear that, at least to the start of 2024, coal consumption in total has not fallen, and rather, is still, or at least has been, still rising. Perhaps, as the graph indicates, the peak is now or just about to be upon on us, in total, but it is quite clear that coal is not in fact dead, yet.

The below graph looks at capacity additions (coal plants, essentially). Australia was one of the few countries to have on-net retirements, many others, led by China, increased. Perhaps China is building out capacity that they will never use, on the grounds of national or energy security. But it would seem odd to have it, and not use it, and so to that end capacity additions would be a fair prognostic indicator (guide/forecast/implication) for intended further demand.

So in sum I suppose we’ve moderated some of the strength of our view around being anti-coal. We’ve had a position in AGL and AZJ (coal assets for energy production, coal for rail transport respectively) so we’ve not been totally averse, and we took those positions largely on valuation grounds, and due to company fundamentals, rather than the macro centric top down commodity outlook.

But still, fair to say, a softening in our view; it does seem plausible that coal will be around for some time to come, if we are at the peak, it is akin to a long plateau.

In any case, that is a whole bunch of conversation and throat clearing about thermal coal. We are much more constructive on metalurgical coal, as regards a long and relatively uninterupted future. Green steel seems, in our view, to be some way off in terms of mass adoption.

With met coal (well, coal in general, and it extends to any commodity) our worry tends to be something like “a country we don’t pay a lot of attention to turns out to be much more important as a marginal supplier than we anticipated and a sudden burst of production or exports floods the maket and crunches the commodity”.

That happens a lot, in commodity land. The above graph is for Mongolia, who is now railing vast amounts of coal to China. But we can also think of nickel, future facing EV commodity, and then the subsequent flood of it from Indonesia, which crushed the price and sent nickel miners into bankruptcy, as the most recent example.

And, don’t be fooled by sizeable commodity decks from brokers, in which you might think you can find the advance warning of such things coming, or analysis from fund managers with large resource teams doing channel checks, they are as in the dark as the rest of us, almost all the time, which we know by doing backtests on their price targets, recommendations, and performance numbers.

It’s not a critisim, it’s just that commodity markets are non-linear/dynamic/unstable in their equillibria. Small changes in demand or supply produce huge moves in price.

All that said, Whitehaven, for example, via the acquisition of BHP’s Blackwater and Daunia mines becomes a 70% met 30% thermal coal producer, with a strong balance sheet, good margins, no dilution (it is remarkable that they’ve gobbled up assets that make themselves vastly larger without any equity issuance) and that’s the sort of thing that’s hard not to like, particularly if coal in both its forms will be around for many years still to come.

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