Will Record Production Reverse Whitehaven Coal’s Share Price?

Shares of coal producer Whitehaven Coal Ltd [ASX:WHC] have opened strongly this morning thanks to record production.

The WHC share price has been in steady decline since the end of the 2018 financial year.

This morning’s quarterly production update has pushed the share price higher by 16 cents, or nearly 11%, to trade at $1.62 per share.

ASX WHC - Whitehaven Coal Share Price Chart 1

Source: Tradingview.com

How much coal will save Whitehaven’s share price?

With some miners feeling the effects of COVID-19 on their production levels, WHC announced it had been unscathed by the virus.

Which could be a contributing factor to its record production this quarter.

According to the coal miner, the June quarter saw 8.2Mt of coal production.

Up 17% from the previous corresponding quarter.

Saleable coal production lifted 29% to 6.2Mt.

This corresponded to 5.3Mt of actual coal sold in the quarter, up 13% on the June quarter FY19.

A pleasing result for WHC and its shareholders given the dismal performance in the previous two quarters.

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Both Q2 and Q3 of FY20 saw saleable coal production and actual coal sales drop.

The December quarter saw a reduction in saleable coal production of 44%, with sales slumping 17%.

The record production this quarter has meant WHC has achieved both its full-year production and sales guidance levels.

With the March quarter FY20 sales dropping by 22% due to a contraction in economic activity, record sales in Q4 FY20 could point to an uptick in global economic activity.

Coal can be used for both energy generation and in manufacturing.

The global PMI took a huge hit during the COVID-19 outbreak.

But things now look to be recovering…

Global PMI Composite Trading Economics Chart

Global PMI Composite, source: Trading Economics

This could spell good news for the WHC share price as manufacturing begins to return to pre-coronavirus levels.

The China factor

According to WHC, imports of Australian thermal and metallurgical coal remain lower than in the first half of FY20.

This is despite record imports of Australian coal into China during the second half of H2 FY20.

WHC said uncertainty surrounding future Chinese import quotas weighed upon coal prices in the quarter.

Australia’s relationship with China has come under pressure as finger pointing over the coronavirus outbreak continues.

Meaning Australian imports to the country are not certain.

Across Asia, steel producers have deferred coal shipments as demand for steel remains weak.

Customers in Whitehaven’s key metallurgical coal markets of India and north-east Asia have implemented steel production cuts.

Which will result in in the deferral of shipments of coal out of Q4 FY20.

With coal prices in May and June in the lowest decile of pricing since 2008, full-year results will be closely watched when they come out.

Not just because of what it will mean for the WHC share price, but also because of the implications it has for the strength of key economies.

FY21 production guidance and full-year results are scheduled to be announced in August.

If you are feeling bearish about the prospects of a global economic recovery, we have a great resource for you.

In a brand-new report, our editor Vern Gowdie warns of the dangers waiting in a post-COVID-19 world. Plus, he outlines the steps you should take now to protect your wealth. Learn more here.

Regards,

Lachlann Tierney,
For The Rum Rebellion

 


Lachlann Tierney is a writer for The Rum Rebellion and has been investing for nearly a decade. With a Masters of Science from the London School of Economics, he brings a sound understanding of global markets to his writing. Lachlann is interested in emerging technologies, energy solutions and helping people invest their money wisely. 


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