Australian coal is generating record profits as commodity prices soar. Although labor market conditions are difficult and inflation is putting pressure on prices, shareholders are getting returns.
Australia’s largest publicly traded coal mining companies are forecasting record annual profits for the year 2022. Despite the difficult context, they benefit from price inflation. In addition, the demand for the Australian resource is increasing rapidly.
As a reminder, the European Commission has banned Russian imports, following the invasion of Ukraine. Fears of supply shortages have caused world coal prices to rise sharply. Of note, prices are not expected to decline, given the ongoing supply chain issues.
Record profits for 2022
Australian coal miners expect record annual profits for 2022. According to analysts at Refinitiv, Whitehaven, Australia’s largest independent coal miner, has an estimated profit of A$1.89 billion ($1.31 billion). The annual results will be published on August 25.
For Coronado Global Resource and Yancoal Australia, they have already achieved record interim profits. New Hope expects to release its annual results next month on September 19.
As a result, Jon Mills, analyst at Morningstar Australasia, says:
“With record earnings anticipated, it is likely that the company will announce capital management actions, including share repurchases and dividends, now that it is generating significant cash flow.”
Due to soaring prices, the state of Queensland has decided to increase taxation on coal production for the 2023 financial year.
Australian coal in high demand
Due to the European ban and fears of shortages, demand for Australian coal is rising sharply. This is especially true for buyers who depend on Russia. The latter have been approached by governments to help them replace the Russian resource. As a result, there is a growing dependence on the main coal exporter, Australia.
In addition, Jefferies’ analysis comments:
“Coal stocks have recently outperformed and coal continues to be our preferred commodity over the next 3-6 months. […] A key driver of our conviction has been the defensive positioning of thermal coal, as demand is more dependent on war and weather than global GDP growth.”
However, Australian miners are struggling to keep up with demand. Flooding, the COVID-19 epidemic and labor shortages are slowing down production, rather than increasing it rapidly.
As a result, Australia’s coal is in high demand and is generating record profits for the country’s mining companies. It remains to be seen whether this trend will continue in 2023.