Coal miners expect good year on higher demand, rising prices

May 05, 2022 - 08:29

Rallies in recent sessions of coal stocks have boosted the market's sentiment. 

A worker at a mining site of Mông Dương Coal. Photo

HÀ NỘI — Coal mining enterprises are bullish about their business operations on high coal demand, after positive results in the first quarter of 2022 with many exceeding targets.

Data compiled by Vinacomin - Minerals Holding Corporation (UPCoM: KSV) showed that in the last quarter, raw coal output was 10.58 million tonnes, reaching 27.1 per cent of the year plan and equaling 106 per cent of last year's production. Meanwhile, its coal consumption reached 11.07 million tonnes, equal to 25.7 per cent of the annual plan and up 12.4 per cent year-on-year. 

During the economic recovery post-COVID-19 pandemic, domestic demand for coal is at a high level, especially coal for power generation. Coal-fired power is accounting for more than 30 per cent of the country's total power capacity and plays an important role in ensuring national energy security. It is also one of the main sources of power supply to meet the needs of economic development and maintain the stable operation of the system.

Rising coal prices

Moreover, domestic coal prices are expected to soon be adjusted, increasing profit margins for businesses. According to Việt Capital Securities Company (VCSC), the domestic coal price is currently at a modest level compared to the international coal price. At present, international prices were 2.5-3 times higher than domestic prices and may continue to increase.

Rystad Energy, an independent energy research agency, said that if sanctions on coal with Russia eventuate or there is a physical disruption to Russian rail/port transportation, then there will not be a cap on coal prices. 

Adding to the supply concerns, Australia recently declared a national emergency in response to devastating floods along the East coast, affecting coal-producing regions of this country. Rystad Energy predicts coal prices may surpass US$500 per tonne this year.

Meanwhile, experts of VCSC forecast that TKV may ask to raise coal prices in 2022, as domestic coal prices have remained stable over the past two years despite rising production costs. 

With the domestic coal production capacity of 100 per cent, coal production is expected to reach 41 million tonnes this year, up 2 per cent on-year. Therefore TKV has to import coal from other markets. And as international coal prices have continuously inched higher, it is not economical for TKV to maintain the coal prices since 2021. 

Sacombank Securities Joint Stock Company (SBS) said that listed coal mining companies can also benefit from negotiating new selling prices for TKV this year. 

To produce coal for power generation and benefit from the cost, businesses are concentrating their resources, preventing production disruptions. They also have to mobilise the workforce and equipment to organise coal mining, increase coal production, process and mix coal, ensuring coal output for consumption demand.

Bullish business results

Thanks to that, a number of coal mining companies reported outstanding production and business results in the first quarter of 2022. For Núi Béo Coal JSC (HNX: NBC), under Vinacomin, coal consumption reached 545,000 tonnes, exceeding 30 per cent of the quarterly plan, while its revenue was VNĐ826 billion, exceeding 34 per cent of the quarter plan.

Hà Tu Coal JSC (HNX: THT), another company under Vinacomin, produced 370,000 tonnes of raw coal, reaching over 29 per cent of the year plan, while coal consumption was approximately 70,000 tonnes, reaching over 25 per cent of the year plan. The coal miner posted revenue of VNĐ1 trillion, equal to 26.3 per cent of the five-year plan, with profit of over VNĐ10 billion, reaching 33 per cent of the year plan.

Mông Dương Coal JSC (HNX: MDC), under Vinacomin, said that its coal production in the first quarter reached 325,000 tonnes, 21.3 per cent of the year plan. It consumed 340,000 tonnes, reaching 22.3 per cent of the year plan.

On the stock market, coal stocks extended recent rallies with MDC up 4.84 per cent to VNĐ13,000 per share at 2.45pm (local time), while THT rose 5.07 per cent to VNĐ14,500 a share, NBC climbed by 6 per cent to VNĐ15,900 per share. 

Lê Xuân, a senior trader, said that coal stocks witnessed extraordinary performance in the last four to five sessions as they traded contrary to the market's downside trend. 

"It is thanks to higher domestic coal demand post-COVID-19, rising inflation, the conflict between Russia and Ukraine, and news about China reducing coal import tariffs to zero starting from May," Xuân added. 

"However, I think investors need to pay attention to liquidity when trading these stocks, since coal stocks' trading volume is quite low.

"Moreover, the industry has fewer rally waves than others, so investors need to be patient. 

"The industry's business results are not so impressive with low price to book (P/B) ratio and price to earning (P/E) ration due to low earning per share (EPS) ratio." — VNS