Insights on Coal from Industry Expert Matt Warder
Original Article: https://www.juniorstocks.com/matt-warder-on-why-coal-is-still-king-a-bullish-outlook
In a recent interview on the Natural Resource Stocks YouTube channel, industry expert Matt Warder shared compelling insights into the bullish case for coal with host Andy Millette. As the global energy landscape evolves, coal remains a critical component, especially in emerging economies. Here, we dive into Warder's analysis, highlighting the key drivers behind coal's enduring value and potential for growth.
The Bullish Case for Coal
Matt Warder began the interview by acknowledging the energy transition efforts that have attempted to curb coal demand. However, he emphasized that despite these efforts, coal's global significance cannot be overlooked. He pointed out that the United States has historically been a swing supplier of coal, capable of ramping up production to meet global demand during supply disruptions in other major coal-producing regions like Australia.
During the pandemic, many coal mines shut down, which has significantly reduced the elasticity of coal supply. This inelasticity means that when demand spikes, as it did during the run-up to the Russia-Ukraine war, the coal industry struggles to meet the increased demand. This supply constraint can drive coal prices to extraordinary heights, benefiting producers.
Economic and Industrial Relevance
Warder highlighted that coal is not a monolithic commodity; it serves distinct markets, primarily energy generation and steel production. In energy generation, coal competes with natural gas. However, natural gas prices' volatility often makes coal a more attractive option, particularly for countries with less access to cheap natural gas.
For steel production, metallurgical coal is indispensable. Approximately 70-80% of global steel is produced using blast furnaces, which rely on metallurgical coal to produce coke, a critical component in steelmaking. The strength and quality of metallurgical coal make it essential for maintaining the integrity of the blast furnace process. As Warder succinctly put it, "If we don't have coal, the world won't have the steel supply it needs."
Global Demand and Supply Dynamics
Warder explained that while Western economies are reducing their reliance on coal, developing economies, particularly in Asia, continue to depend on it. China, for example, is the world's largest coal consumer and uses it extensively to power its industrial activities, including electric vehicle production. India, another major player, relies heavily on high-calorific value thermal coal for its growing power needs.
The export dynamics of coal are also crucial. The United States primarily exports to Europe and Brazil, with European demand recently spiking due to natural gas supply issues. Meanwhile, China's coal imports come mainly from Indonesia and Mongolia, with some high-quality metallurgical coal imported from Australia, Canada, and the United States.
Investment Opportunities
The interview also shed light on investment opportunities within the coal sector. Warder highlighted several key players:
Alpha Metallurgical Resources (AMR.US): Known for its aggressive share buyback program, AMR has significantly appreciated in value, demonstrating a robust commitment to returning capital to shareholders.
Warrior Met Coal (HCC.US): Operating mines in Alabama, Warrior Met Coal benefits from lower transportation costs and is poised to increase production with its new Blue Creek mine, expected to generate substantial free cash flow by 2027.
Peabody Energy (BTU.US): As one of the oldest coal companies, Peabody is expanding its metallurgical coal capabilities with the Centurion mine in Australia, expected to add significant free cash flow in the coming years.
Whitehaven Coal (WHC.AX): Transitioning from a pure thermal coal producer to a 50-50 hybrid with metallurgical coal, Whitehaven's recent acquisitions position it well for future growth.
Consol Energy (CEIX.US): With the lowest cost thermal coal operations in the US, Consol Energy remains a key player, especially in European and Indian markets.
Junior Stocks Top Coal Pick
Forge Resources Corp ( $FRG ): Formerly Benjamin Hill Mining, Forge Resources is fuelling progress, and building legacy with Aion Mining Corp in Colombia. Forge Resources is positioning itself as one-to-watch within the coal sector.
Conclusion
Matt Warder's insights underscore the resilience and ongoing relevance of coal in the global energy and industrial landscape. Despite efforts to transition to cleaner energy sources, coal remains a critical component for many economies, particularly in Asia. For investors, understanding the nuances of the coal market and identifying key players like AMR, Warrior Met Coal, Peabody Energy, Whitehaven Coal, and Consol Energy can provide significant opportunities for growth and returns. As Warder emphasized, the coal sector needs retail investors to maximize its potential, making it a compelling area for investment consideration.
To watch the full interview and gain deeper insights, watch here.
