Singapore Coal Monthly - Phillip Securities 2018-05-07: Expecting A Healthy Price Correction

Singapore Coal Monthly - Phillip Securities 2018-05-07: Expecting A Healthy Price Correction GEO ENERGY RESOURCES LIMITED SGX: RE4 GOLDEN ENERGY AND RESOURCESLTD SGX: AUE

Singapore Coal Monthly - Expecting A Healthy Price Correction

What is the news?


  • On 16-Apr, the authority re-imposed a new round of restriction on coal imports at southern and eastern ports located in Zhejiang, Fujian, Guangdong, and Guangxi provinces. The regulations ranged from bans on unloading to tighter customs clearances. It is viewed as supporting the domestic coal prices and re-channelling profits back on domestic producers.


  • According to Platts, Indonesian coal miners reported health average selling price (ASP) in 1Q18. The growth of ASP was attributable to strong demand from China and weather-related supply disruptions. 1Q18 production from Adaro Energy, the largest coal miner in Indonesia, dropped by 8% y-o-y, while Bukit Asam, another coal giant reported an 18% y-o-y jump in production.

The cooling measure is seasonal

  • In retrospect, the initiation of the ban on imported coal through small ports was in Jul-17. It persisted until the end of the year. However, the extreme winter climate led to a surge in demand for coal. During that period, the domestic production failed to catch up, resulting in more reliance on imported coal since Dec-17. 
  • In early 2018, the Big 4 power generators urged to loosen the control on imported coal, and the authorities relented in Feb-18. The jump of power demand aligned with the rebound of imported coal in Jan/Feb-18. 
  • The new round of restrictions is to protect the domestic coal miner’s interest given the domestic capacity is relatively sufficient to cater to demand during the slack season. It is worth noting that the restrictions are mainly imposed on small ports rather than the large ports. 
  • Import volume from small ports accounts for less than 30% of the total amount. China still relies on imported coal to fill the demand gap. We believe the restriction is to maintain the domestic coal miners’ market share amid a healthy supply-demand dynamic.

Coal price topped out in 1Q18

  • The uptrend of coal prices starting in Jul-17 lasted for 9 months until Mar-18. The HBA index reached 6-year high, so did Qinghuangdao 5,500 GAR FOB price in 1Q18. In Apr-18, Coal prices started to correct (down c.10% m-o-m) due to a moderation in demand after winter. Accordingly, more supply began to build up. The port coal stockpile surged in Mar/Apr-18. 
  • We believe the seasonal correction of price is healthy given the recent coal price level have created untenable pressure on both China and Indonesia thermal plants for months. This implies less intervention by authorities on behalf of these utilities.

Coal counters monthly updates

Golden Energy and Resources (Target price: S$0.48 / Rating: BUY)

  • FY17 production arrived at 15.6mn tonnes (+64.2% y-o-y).
  • Secured 13 offtake agreements for 15mn tonnes of coal sales in FY18.
  • Sales target in FY18 will be 20mn tonnes.
  • Cash position reached US$189mn as of Mar-18.

Geo Energy Resources (Target price: S$0.47/ Rating: BUY)

  • FY17 production arrived at 7.7mn tonnes (+40% y-o-y).
  • Secured an offtake agreement with ECTP for 7.5mn tonnes coal supply in FY18.
  • Sales target in FY18 will be 11 to 12mn tonnes.
  • Cash position reached US$262mn as of Dec-17.

Investment Action

  • We remain upbeat on the sector as we expect coal price (FY18e for 4,200 GAR: US$40/tonne, 1Q18 4,200 GAR: US$52.4/tonne) will be favourable for coal miners. Meanwhile, the ramp-up of production is still on track. 
  • The risk worth drawing attention to is the monsoon season that could cause some disruption to operations. 
  • We maintain BUY rating on coal sector.

Chen Guangzhi Phillip Securities | 2018-05-07
SGX Stock Analyst Report BUY Maintain BUY 0.470 Same 0.470
BUY Maintain BUY 0.480 Same 0.480