Incoming Peak Season
Beauty… Clean energy has been undoubtedly the most popular investment theme over the past three years. Ultimately, the final output from the various forms of clean energy, which includes solar, wind, and nuclear, is electricity. As electricity demand in the foreseeable future continues to grow due to increasing adoption of electric vehicles and crypto mining, the supply of electricity is critical for both developed and developing countries.
Apart from nuclear power, which is the most efficient source of electricity but attracts an equal amount of controversy, other forms of renewable energy have not reached optimal efficiency. In addition, renewable sources of power are not widely deployable due to limitations. Solar farms and wind farms have to be located in areas with abundant sunlight and wind. Therefore, as of now, coal-fired power remains the major source of supply and is still decades from being completely replaced.
…and the beast. The out-of-favour dirty fossil fuel still provides a lucrative outlook for investors in the near term. China is the largest coal consumer on the planet, and hence, its supply-demand dynamics is a key barometer for coal prices. Generally, China has two peak coal consumption seasons, summer (June to August) and winter (November to January), and three high restocking (import) periods, spring (March to April), summer (July to August), and autumn (October to November).
Shopping spree is coming. China has been slowing down coal imports since March as prices almost doubled in 1H2021. Although China’s May port coal inventory level reached the second highest level compared to the past five years, the consumption of coal is much higher due to the domestic and global economic recovery in 2H2020. China’s electricity consumption from January to April topped the past five years. Therefore, we expect that China will initiate a second round coal buying spree in the next couple of months, especially on any coal price weakness, which we believe will eventually help to support coal prices.
Equities to trade: Geo Energy (GERL SP; Trading Target Price: S$0.25)
China total port coal inventory seasonal chart (2016 to 2021)