321% realised price rise for coal miner reveals perfect storm

Image: Kelly

Wait, what?

Yesterday, Whitehaven coal reported some numbers that just might snap your head off.

Behind the coal miner’s $3 billion in profit expected for FY22, were some hefty volume and realised price increases.

Have a gander at the ‘Price achieved’ rows in the last section of the table below.

Source: Whitehaven Coal announcement, 18 July 2022

Size and pace of rise accelerated

As you can see from the handwritten edits, I’ve done the year on year math for you.

With most of the sales coming from thermal coal (84% of the sales mix), the average realised price for most of the product increased by 294% yoy.

While the rate of change decreased between the September and December 2021 quarters, it accelerated again in the March and June quarters.

My job is not to predict, but I suspect with no capitulation from Russia and a continuation of crazy energy policy from the White House, this is going to continue as the world hunts for energy security.

The dollar wrecking ball is favourable to USD Aussie exporters

Don’t forget that in Australia dollars, the average price increase across both met (coking) and thermal coal was actually higher, at a massive 321%. That means the realised price went over 4x in one year.

And the difference between 321% and the 294% was the weaker AUD.

As I’ve been writing for a while, the perfect storm for Australian miners is where you have high commodity prices and a weak AUD against the USD because you get more AUD when you convert more valuable USDs back into AUD.

Whitehaven is enjoying price rises and currency gains.

For Australia, the USD is still a wrecking ball when it comes to imports and like other countries we import inflation.

But for exports, the wrecking ball is rubber lined and bounces off without any damage.

I’ve also written often about how the wrecking ball manifests in not such a good way in other countries, particularly net importers.

Those countries don’t have massive exports to fill up their foreign reserve coffers. Typically, they convert their weaker currencies into dollars if they want to buy USD denominated products and services, and/or buy U.S. treasuries for investment purposes - effectively importing inflation.

Unfortunately, supply and constrained energy and other commodity prices, food shortages, and a very strong (and scarce) dollar is a recipe for hyperinflation in those weaker countries.

Add to that spiralling debt and you have a turbo charged wrecking ball capable of collapsing already vulnerable/marginal economies.

Just like Sri Lanka.

A perfect yet repugnant storm for fossils

While many people want to close the chapter on fossil fuels, there is still a chapter or two to be written on the subject.

Fossil fuels are on one hand repugnant by virtue of their emissions and the insane profits they are now commanding.

But they are the only options available to plug the massive hole in global energy capacity and keep billions lit, warm and fed while green energy mandates attempt to gather pace.

And that’s only if those mandates are possible to achieve once you factor in years of underinvestment in energy infrastructure.

There is now a multitude of factors pushing back on the green agenda and moving the world back to our installed fossil capacity. Energy security, geo-political realignments, decelerating globalisation, reshoring, fertiliser and food shortages and other supply shocks including more frequently occurring natural disasters are just some of them.

The risk that the green agenda is becoming a little too difficult and expensive for many governments to support under the current economic and geo-political circumstances, is increasing.

Mike

Image: Dexter Fernandes

Next Level Corporate Advisory is a leading M&A and capital markets advisor with a 20 year track record of delivering the highest quality of independent financial advice as well as strategic transactions to help companies of all sizes level-up, in and out of Australia.

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Michael Ganon#markets, #equities, #stocks, #finance, #economics, #ethereum, #inflation, #deflation, #nft, #bonds, #gold, #globalmarkets, #globaleconomy, #qe, #qeinfinity, #economy, #interestrates, #business, #trade, #transformation, #strategy, #ceos, #directors, #founders, #cfos, #currencies, #construction, #mining, #renewables, #technology, #leadership, #india, #china, #australia, #perthbusiness, #education, #research, #uk, #gdpgrowth, #retail, #businessowners, #future, #brexit, #nextlevelcorporate, #mikeganon, #community, #tradewar, #America, #covid-19, #bitcoin, # perthbusiness, #populism, #crypto, #bitocin, #luna, #ripple, #solana