ASX 200 coal shares are positioned to benefit from a ban on Indonesian coal exports and talks of China resuming imports from Australia on the black rock, according to analysis from Fitch Ratings.
Players such as Whitehaven Coal Ltd (ASX: WHC), Yancoal Australia Ltd (ASX: YAL) and New Hope Corporation Limited (ASX: NHC) all traded higher this week as the market looks to price in the effects of the export ban.
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What's the situation with ASX 200 coal shares?
Indonesia – the world's largest thermal coal export – announced a ban on all coal exports from January 1 amid critically low domestic coal stocks.
Much of the controversy stems from the fact that domestic Indonesian coal producers are failing to meet their duties in supplying a 25% minimum quota to the local market.
As such, President Joko Widodo has threatened to come down hard on any producers who fail to meet domestic market requirements via a "revocation of business permits".
Coal traders immediately recognised the headwind on Sunday and sought to price in the risk of global shortages resultant from the export ban.
Since the announcement, spot prices have jumped more than 22.5% to now trade at US$193/tonne whereas the market is pricing a February 2022 coal price US$196.50 to start off trading in 2022.
Hence coal prices have reversed course after falling sharply from all time highs of US$269.60/tonne back in October.
It has since been revealed that Indonesia has secured an additional 7.5 million tonnes of coal inventory which could increase the chances of the ban being lifted soon.
Fitch also reckons that China might have its hand forced to reinstate Australian coal imports if Indonesia extends its ban for much longer.
This would bode in well for Australian coal produces says Fitch, particularly as demand from other South East Asian countries would pick up also.
Most ASX coal producers are considered price takers on the commodity, meaning their share price will fluctuate with volatility in the commodity markets.
Not to mention the positive impacts to margins and free cash flow conversion from the buoyant prices each producer will realise on each sale.
As such, it is likely that any gain in the price of coal will be reflected in the ASX coal basket for these reasons.
What's next?
According to Fitch, the export ban is set to have an impact on many adjacent industries as well, such as shipping and logistics.
The ban will also affect shipping companies, as "they could incur $US20,000-$US40,000 per day in demurrage costs, while the government could face about $US3 billion per month in foreign exchange losses on top of losses in royalty and other revenues", Fitch says.
Regarding the longer-term impact on coal prices, Fitch reckons that Indonesia's export ban would "send coal prices rallying for longer and a shift in global trade flows, with smaller and inefficient mines globally likely resuming operations following attractive prices".
China is also likely to face a short-term coal crisis as it approaches peak winter heating demand Fitch reckons, which would prop coal prices up further.
Each of Whitehaven, Yancoal and New Hope finished trading on Friday, up more than 3%.
