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Rising coal prices lifting Australia’s export revenues but investors staying away

Newcastle coal prices have risen more than 40 per cent in a year to be at their highest levels for seven years but the industry is becoming increasingly isolated as traditional sources of investment funds dry up.

One of the important indicators of the global coal market, the McCloskey spot price index for Newcastle thermal coal bound for Japanese power stations, has risen from $US101.60 a tonne ($135.40) a year ago to $US115.50 ($156) during the last two weeks of June.

A year ago, the McCloskey index was $US79.95 ($105), meaning the index has risen almost 45 per cent in a year.

Analysts say the higher prices indicate restrictions in supply. In the years before sentiment turned against coal, mining companies would have reacted to an increase in demand by opening new mines or expanding existing ones to lift production.

But with big banks increasingly unwilling to lend on coal projects, analysts say the industry will have to find non-traditional sources of finance, such as private equity. They say the lack of finance also means prices for thermal coal, and for coking coal used in steelmaking, are unlikely to fall back to the low levels that saw thermal coal bottom out at less than $US50 ($68) a tonne in the first half of 2016.

A new commodities report this week by the National Australia Bank predicted an average thermal coal price this year of $US98 ($132.50) this year, up 12 per cent on last year. The price rises mean coal is likely to top iron ore as Australia’s biggest export earner this year.

Despite the available profits in the sector – Newcastle exporter Whitehaven’s share price has gone from $4.10 in March to $5.89 this week – institutional investors are increasingly staying away.

Chinese-backed Yancoal – which is listed on the stock exchange – wants a dual listing in Hong Kong, which chairman Baocai Zhang says will help “diversify Yancoal’s investor base”.

As an example of investor reluctance, the Australian Financial Review reported this week that the $67-billion UniSuper fund had added its name to the list of funds that would no longer buy coal shares.
Source: Newcastle Herald

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