The Bearish Trend of Coal Prices Still Continues
The Newcastle coal prices dropped by 38.34 YoY and –33.43% YTD to USD67.30/mt (as of 17 Oct 2019). The bearish trend is expected to continue due to : 1) Weakening global economy toward recession potentials; 2) Unclearity of Trade War issue which is estimated to spirall into Currency and Technology War; 3) Urgency to reduce air pollution in China and green energy campaign led by European Union (UE); 4) The US plan to retire 10% of their coal based power plant in FY19F and FY20F.
China Plays Key Role to Drive the Sector
China led the global coal production by 46% and demand by 51% in FY18. It means that all of policy and economic changes in China will dramatically affect the coal sector outlook in the long run. We highlight some policy such as coal import quota has became a buffer to the fall of coal price for a while. However the urgency to reduce air pollution push the China govt to keep on lowering its coal consumption by 5%-10% across 82 cities in FY20F. Moreover the cloudy outlook for coal sector remains along with the continuing decline of China GDP to 6% yoy in 3Q19, the lowest growth in last 30 years.
Coal Price Outlook in 2020 – 2030
The coal price is estimated to descend from average of USD107,25 in FY18 to USD70.00/mt in FY19E along with import caps and global demand slowdowns. Bloomberg consensus projects Newcastle coal price at USD67.67/mt in FY20F. The number will continue to decrease significantly to USD47.7/mt in FY30F, according to World Bank.
NEUTRAL Outlook with ADRO as Top Pick
We believe that there are still investment opportunities for the coal sector in Indonesia, wherein the local companies are currently developing a Power Plant Field in their business. ADRO (BUY; TP: IDR1,680) will become a coal company that has a 2,260 MW power plant in FY20F. Overall, MNCS recommends NEUTRAL for the coal mining sector.
