Episode 14: Hormuz, Gas Spikes & The "Ayatollah Toll"

This is the Coaltrader Podcast on the Clear Commodity Network, your source for trading and investing in the coal markets. You know, a lot of things going on, or moves, gas markets, coal markets, paradigm shift in the energy markets. A lot of things to talk about. There's probably too much to talk about in order to get through in a timely fashion. So let's probably jump right in. I mean, here over the past week or so, we've had thermal coal prices up, you know, about, you know, 4% to 5% if you start to look down the curve. Newcastle up, I think, 5 in the 140s, API 2. Once we roll over tomorrow, it's going to be in the mid 120s, Richard's Bay. Up a little bit less, about 2% across the curve in the low 110s, and Indonesian coal kind of hanging in in the high 50s. You know, and all of this is a pretty significantly month on month, you know, over 10% and directly due to hormones. So Joe, you've got a lot of stuff to talk about here today. I'm sure he just coming back from zero weeks. So why don't you take it over there and let's go through it. Yeah, absolutely. So last week was packed week at zero week. I wrote a short piece on the Coaltrader about the discussions there. You know, not a coal guy to be found except for Ernie Thrasher, which, you know, love to see him. You know, people mentioned coal, but there wasn't anybody doing any analysis of coal. But yeah, the thermal coal world is tight. As you said, prices are high. There's, you know, there's availability in Indonesia. So it's less tight. But I think coal is going to ride these higher gas prices higher. And if gas prices are likely to have a premium on them over the next few years, you've got 17% of cutter, Rosalafon offline for three to five years. I talked to folks at the conference. Those are definitely custom build trains. The trains that goes S4 and S6 that got hit. The trains that X on partially owns. They're going to be off for quite a while. And the fact that there's a risk premium on gas and the fact that there's less supply than anticipated, I think we have a higher floor on LNG. And you know, the LNG oversupply that folks were expecting, I think, is pushed out a few years. So instead of 2029, 2030, I think it might be 2032 or something like that. So I think we have a few years of tighter markets in thermal coal with a higher floor. And, you know, that's good. That's good for those of us who own coal stocks. So we'll take it. Again, it's just looking through the list here when we start to look at thermal coal folks from the US. Core natural resources, which is our kind of preferred play for the US is up 33% over the past month. Even though we've kind of dialed back here over the past week down just 0.4% kind of consolidating here in the 109, 110 right around that region right there. But you know, alliance is even up 7% in the past month. You use up 9% in the past month. They just took a whack here recently because of a bit of a slowdown at Centurion. And then when you look through Australian thermal coal, you can call it 41% over the past month, white havin, 18% new up up 25% and then you get into, you know, Dungella up 47% tarot comma 45%. It's just, it's reflected the moving gas across the board. And now I guess the question is, well, tomorrow is April 1st. We're going to have three months of, you know, relatively lackluster demand. Yeah, shoulders using the news upon us. Yeah. I mean, how do you think we're going to play out here as demands for the subsides from weather perspective? Yeah, I'd be a little cautious here just for the next couple months, you know, restocking will happen. Maybe end of April, May. I think we already saw over the last week, maybe markets kind of, you know, physical markets, physical activity kind of plateauing here for the shoulder season. So you could see prices even come off a little bit or moderate. But then, you know, when you get into summer restocking season, I think, I think we'll be in thermal coal, be in a strong position. My old buddy from Politico Pro interviewed me on the sidelines of tier week and I was, he was asking me, you know, do I have the list correct of all these countries that are now on the bid for their local. And I said, you know, pretty much everywhere. It's like Taiwan, Japan, South Korea. I think South Korea lessened its sulfur regulations for coal to make sure that they would have enough energy. I mean, Bangladesh, Philippines, India, I talked to traders looking to place car goes into India. So, you know, just a lot of buyers and they can't afford LNG or they can't get it and they're going to be bidding for coal this summer. And in the high CV thermal coal market, that's tighter, fewer, less competition, fewer players. That's where you see the real price gains. I think we hold on to those. And there's a lot of wild cards around, who are moves. You know, I said, I liked, I would go long, Yan Cole at eight bucks a share. You know, I think that was right. Where are we at today, Matt? If you got it up, probably be a little cautious here, you know, where we are right now. Yeah, eight, eight twenty nine, but it's pulled back five percent last night. Yeah. White Havens back down to nine twenty five, but it was down six percent in the Aussie overnight section. And, you know, it's hard to tell right now if that's, you know, strictly just we're profit taking from, you know, from a pretty massive run over the past month, or if that's, you know, indicative that children's seasons really set in and, you know, the tightness in the gas market is going to ease up a little bit just due to weather. I think it has to be at least some modicum of the ladder. So I agree with you. You got to kind of have to keep your head on a swivel here. You want to, you know, maximize value for everything that's run up so far, but, you know, I think you probably keep the stops a little bit tighter here over the next month or so. I'm not, I'm not sure we want to put on edges per se. Mark Sonno and I talked a little bit about that a week and a half ago. I think it's more just, you know, once, once the run is kind of, you know, run its course, I'll just take a step back and, you know, maybe just plan to buy the dips more so than hedge down. Or at least that's kind of what I was thinking. Yeah. I mean, I kind of agree with that. I, you know, it's just kind of the sentiment in the market right now. You could still have, or moves blocked though. And things could get, things could get crazy. I mean, you know, or you could have oil at 150, 180 easily. You could have LNG remaining above 20 per million BTU, going to 25. You know, I don't know. It's really hard to handicap right now. But it's as, as my friend Rick Rool, to paraphrase him, you know, our track records for predicting geopolitical outcomes are unblemished by success. So yeah, and it's especially so with, you know, the current administration, which, you know, sometimes covered by a tweet. So, you know, there's a lot of folks in the market kind of expecting Taco, so to speak. But, you know, right now, Iran is kind of a control of the straight, whether anybody likes it or not. And I think, you know, at least when we talked when it started, we were, you know, the word on the street was, you know, just kind of soft circle two months on the calendar. And let's see where we're at at that point in time. And we're about halfway through that. I'm sure that the world would like to see, you know, business return to, to more usual settings, but whether that's going to be via the Iranian toll or the, uh, IA toll as our friend, the shrub has dubbed it. Oh, yeah, I saw that. I saw that cartoon very, very, very, very cool. Kind of make that one, by the way. But it's just done clear what the traffic is going to look like. It's obviously going to increase from zero, but, you know, whether we're going to get back to, you know, 25, 30, 40 ships a day, it's unclear. Well, if I were a ship owner and I was thinking about paying the IA toll versus insurance, you know, the, the, the, the, the IA toll is cheaper than insurance and, you know, instead of paying people to defend you from all their shooting at you, you just get the guys who are doing the shooting to stop shooting. Uh, it seems like I, it's a great product. Uh-huh. You know, that's what you got to do. That's what you got to do. Yeah, I mean, it's dollar or so per barrel. Um, and then, uh, so Iran had had, uh, released a list of countries that could opt to do that. I think Mexico was on that list. It's only which is where I'm broadcasting from at the moment. Uh, so there was a, you know, bitter relief amongst, uh, amongst some friends here. Even Mexico. Yeah, that's right. But, uh, yeah, I guess anything, any other big takeaways from zero week, you know, even if it's just vibes or other, uh, kind of low level takeaways from talking to folks. Well, I wrote in the cold trader, you know, the LNG guys are really worried that, um, these disruptions are causing buyers, particularly emerging market, developing market buyers from potentially changing their long term plans. I haven't heard of, you know, I haven't heard anything concrete where long, long term plans are changing. So I'm a little cautious about extrapolating, but the chatter was, look, we had COVID and then we had the Ukraine war and now we have war moves and all of those are big changes, fluctuations in the LNG price, sometimes very high LNG prices and lack of deliverability and, you know, is that going to change buyers calculus over the long term? You know, maybe I think over the next few years for sure and, um, I think, yeah, LNG doesn't look as secure right now. So if you were going to bring on five LNG or gas-fired power plants, maybe you hang off on doing the very final one you only build four. I think people are worried about that. So it could benefit coal. I think the risk is to the upside for coal-cold demand. It also could benefit renewables. They're energy secure, but obviously they don't have any capacity value. They just provide energy when they can. When these developing nations often need base load power, strong demographic trends, strong power demand growth, burgeoning industry, they need round the clock power. So I'm biased to the upside, but it's always a little hard to extrapolate on what long-term plans are until we hear some concrete planning documents coming out of places like Bangladesh or Philippines or whatnot. But that was a major theme in the conference. Where do long-term buyers go? I pointed out these emerging markets don't have the money for LNG. So that'll test how much they want to pay for quasi-cleaner energy and if they're banking on getting security of supply from LNG, well, that's in question now. And my view is skewed to the upside, but let's be cautious about extrapolating 20 years down the road. Yeah, exactly. I mean, I'm not sure if people realize long-term modeling is really difficult. You have to hard-code a lot of assumptions into your model in order to come out with a pretty reasonable price and when there's a price forecast and when there's so many variables that are up in the air, hard-coding them is basically a fool's errand. So you can't do an accurate forecast right now. It's almost better to just do scenarios and say, well, what if this, if this and this and this, then XYZ is the outcome. I think that's probably more useful. Scenarios are probably more useful from a business planning perspective or from an investment perspective now than anything else. And unfortunately, those outcomes, I think, are pretty widely disparate depending on how things go. We could take out more infrastructure tomorrow, which would completely alter what our opinion is today. It's just, it's hard to say. Yeah. Well, what's going on in the Metco markets there a little bit? Yeah. A little bit here. Yeah. We've had a little bit of movement up in empathy, especially in the kind of lower quality side. Second tier Metco is sitting at about 188 on the spot market. And if you believe that all Metco's follow where the PLV curve is looking, that could creep up into the 200s as soon as six months out. But Metco broadly is up about 6 to 10% over the past month, depending on where you look on the curve, spot prices for premium low-vol are now sitting in the mid to 30s, 230 to 20 on the futures, 230 for 75, I think, on physical. So those have converged ahead of the month, roll over into April. On the Atlantic side, there's been no change. The East Coast low-vol assessment, still at 192.50, high-vol A at 157.50, U.S. East Coast at 147.50. PCI has come up about 6% in the past month too. It's 165. And now we sort of have to kind of look at where PCI at 167 and semi-soft at 142.50 fall in relation to Thermal Coal, because right now semi-soft and Newcastle are neck and neck. If Newcastle were to continue to appreciate higher, it's our thesis that it would kind of pull up the bottom tier of Metcoal as well, and you'd get some kind of squishing of those relativities from PLV on down. So that's kind of the interplay that we're looking for. It hasn't happened yet. And I don't think we'll probably see much of it until summer. It's given we have three months of demand that's going to fall off to some degree. But I think really the question for us is, when we do move into a shoulder season mode, and there's a question on the chat today, when I was going to ask, well, why are we talking about stockpiles or why are we talking about capacity utilization? And the reason that I tend to be more focused on price from day to day is that's really the leading indicator. Those other data points tend to come out on a monthly basis where they're actually verified and pretty well balanced, and by then the market's already moved. And so we're going to see the rate of change happen first in the prices themselves for the commodity. And then usually the equities fall on-sided, depending on what the macro environment is. So this is a really critical time of the year to pay attention to where prices go. And I think the comment was, reporting those prices every day is a lot like reporting ocean water levels or changes in the wind. But those things are both pretty important to sailors. And right now we're sailing through a sea of uncertainty that can play out in a number of different directions over the next three months. So in my mind, at least really important to pay attention to those things. Now on the equity side, it's been pretty good. I mean, AMR up 28% over the past month, a warrior up 12%, Ramaco only up 1%. So we've had these massive 10% swings from the mid $13 range up into the $15 range these past few weeks that we've taken advantage of in the chat. And we're going to continue to do so. I think Ramaco down in the mid 13s is too cheap. It should be a buy there. But yeah, I don't know about you, Joe. But when the market gives me 10% of the day, I usually just take it. Absolutely. And live to fight another day. But these are all companies that have run up a lot over the past month. And I wouldn't be surprised to see both prices and equity prices pull back. All of this, of course, depending on broader macro conditions. But yeah, I'd be a little bit cautious with establishing new positions right now. As we looked down into before we get there, as we looked at it, we've been associated with the M&A activity around Anglo's mines, which could be maybe a headwind for stock prices here of the next little bits. We have to keep an eye on them. If they do actually wind up with those mines, I think Matt Latomore's crew will be excellent stewards of them. And it really kind of is a game changer for them in terms of overall quality. So depending on what price they're able to get them for and how well they're able to bring them back online, it could be a very interesting development for them. More and auto up 26% over the past month, but that's really just reflecting a move from they might not make it to, well, at 230 Met coal, you know, 188 HCC. There's a lot more, they've got a lot more leeway to maybe stretch things out over the next few months and maybe make it through the cycle. And then we look down to Mongolian mining, just about flat on the month, South Goby up 2.5% and then the Canadian listed coal companies, which have a bit of a Met component down about 12% over the past month, but have bounced here recently, both colonial and forage. So I think broadly speaking, Joe, like when we look across at the market, we're kind of at an inflection point. And whether we go up or down from here is largely geopolitically driven, which gives me a little bit of pause to be confident in the next 10% move when it gets up or down. Yeah, thanks, Matt. Hey, I want to get into some questions from readers. We had some questions last week when I was at Sierra Week and want to pick up on those. But first, I want to pause for a message from Clear Commodity's Network or partner on this podcast and check out some of their other great podcasts. In mining, the difference between a good project and a great investment often comes down to one thing, visibility. Tara Hutton is a Sweden-based online mining investor platform built to make the invisible investable. Because a great project without a story is just data, drill results, spreadsheets, and technical reports that never fully connect. And a great project that isn't online might as well not exist at all. Tara Hutton brings mining projects into the digital spotlight, combining data, narrative, and context in one place. So investors can see not just what a project is, but why it matters. Whether you're evaluating early stage exploration or more advanced development assets, Tara Hutton helps turn complexity into clarity and information into insight. Visit Tara Hutton online and start discovering the stories behind the data. Hey everyone, Trevor Hall here, host of the Mining Stock Daily podcast and CEO of Clear Commodity Network. If you're looking for timely interviews, sharp market commentary, and straight shooting insight into the mining and metal sector, Mining Stock Daily is the show for you. Recover the latest mineral discoveries, company moves, and the macro forces shaping global metals markets every trading day. And now we're part of a Clear Commodity Network bringing you trusted voices across the entire resource and commodity landscape. You can find Mining Stock Daily on your podcast network of choice and at clearcomodity.net. Clear commodity network. Digital news on the physical markets. Thanks, thanks for sticking with us, Joe. I know you're pretty limited on time. So we have a couple of questions that we had from our readers that you want to just take a couple of them and go with it while you have the time and then I'll pick it up on the back end. Yeah, absolutely. Thanks, Matt. So you know, there were some questions on NRP and I'll just talk generally about, you know, the US names that I cover that I like. You know, CNR here has some spare capacity. We wrote about it on the substack and at the cold trader.com. I still like them. I still very much like in this environment, equity environment, broader stock environment, ARLP and NRP and folks kind of wanted to know if the view has changed. And I would say no, I think I think we're moving into, you know, a slightly higher price environment. You know, NRP covers mostly Met coal, but there's some thermal volumes in there. So I think we're in a higher floor for thermal. We're higher floor for Met too. I think you would agree with me, Matt. Yeah, there were questions about whether NRP is going to continue to invest in Soda Ash, Carthic asked that. I, you know, I don't think so here. They just put that $40 million into the company. You know, are they going to sell it? I don't know. I haven't heard any chatter about that. I would be happy if they sold the Soda Ash take. If the Soda is going to get a decent price and they were purely, you know, coal royalties. I think that would play well with the market. And they're probably looking for the right time to exit the probably pretty challenging here with Soda Ash prices having been down for multiple years. And so yeah, I had predicted that NRP would hit 150 per share on the higher distribution. Steven Emory asked about that. I still think that's that's very much on the cards. I think the investment in the Soda Ash pushed that back a little bit, clearly, because, you know, it's kind of a full quarter of debt paydown or or higher distribution that could have come from that Soda Ash environment. But still, later this year, we could be in a position where there's a lot of cash flow coming out of the company. And yes, Steven said, has Iran only increased the confidence level. And I would say yes, it hasn't changed the story a ton, because it's a US-Met dominated company. But yeah, the gut says that there's going to be very high free-code cash flow distributions with a higher floor and coal pricing. That's exactly right. I'll name out, put out a quick note on how much that free cash flow is going to be. I think I was I forget exactly what levels I was talking about. But that's I think that's definitely we're headed towards 150. I got to drop off and let you handle the rest of the questions, Matt. But, you know, you guys are all in very good hands with Matt and look forward to catching up with you soon. That's right. You can ask questions in the additional questions in the chat, Joe. Thanks for that. You know, I will say on free cash flow distribution, a pretty easy way to kind of peg how much it's going to go up. It's just on an annual basis. I think both Matt, Colin, Thermal Coal prices are on an annualized basis are up close to somewhere between 5 to 10% across the board. So I think that's probably from a rate of change perspective what you should probably see within RP going forward. But agree with all of Joe's comments. And Joe, thanks again for for taking the time out of your day to do this. I'll keep going down the list. Charlie has something pretty important, which is do you think the diesel shortages in Australia will affect the math prices? You know, the long answers, yeah, I do think that will wind up affecting prices. Will the shortages affect production though? I think that's still unclear at this point in time. Their last I heard, there were folks that were struggling to get to get some cargoes in. But I think what you'd probably see is just a slowdown in the short term, which will keep prices more elevated during the shoulder season than you would think otherwise. And then over the longer term, you know, I kind of think of diesel for surface mines only as roughly about 10 to 15% of the mining cost. And then for for new South Wales, I believe that their rail system is I think Queensland's rail system is is mostly electrified. So the diesel increase diesel price increase won't affect them too much. But you will see probably some effect from the Thermal Coal side raises the Thermal Coal price for a little bit higher. But I think in general, call it somewhere between a three to five percent increase in surface mining costs overall over the over an annualized basis. The once four moves opens up and product flow is a is more normalized into the age-specific region. We should see those shortages at least pull back a little bit. I just don't think you'll see the price go down meaningfully. A short task, you have any thoughts on what the sustainability is of the Australian met miners with current oil diesel prices squeezing them. Is it possible prices stay higher for longer that they shut down operations, which would give market share to American met miners? I don't think so. I think right now, even with these prices, for the most part, the US is going to stay in the Atlantic Bayesian and Australia is going to stay in the Pacific Bayesian and both are going to compete into India. Shipping costs have gone up with the run-up in product prices. That is kind of a limiting factor to move coal. Great distances across the globe. I think more we'll see it expressed through either slowdown in production and just a greater tendency to stay closer to home. A tamer asks if steel production capacity declines because steel factories are attacked, would that help met coal through higher steel prices or hurt it because less steel would be produced? In Iran, not a whole lot of blast furnaces. They have some EAF production. So it would be a little bit complex across the board. I mean, but if you're asking if steel factories are attacked in other countries in the Middle East, those are also electric-art furnaces. For the most part, so that's going to affect scrap markets more so than anything else. That said, similar to the comment that we've made on the crane war over time, once you get to the other side of the conflict, there's a lot of stuff to rebuild. So that does increase steel demand, at least regionally, for a period of time. So long story short, I don't think it's a big effect. Short terms is because it doesn't affect met coal demand all that much. But it certainly would help bolster steel prices globally, which would in turn provide a little bit of breathing room to keep met coal prices on these elevated levels. A cold job I asked Pennsylvania Minor told him yesterday they went from paying $2,800 for a thousand gallons of diesel to $6,000. A thousand gallons is enough to fill up their surface fleet once. How much would an effect that will just have on miners? You mentioned that diesel is approximately 10% of their operational costs in the US. I mean, I think it just comes out of margin. If you're exporting the cost you're receiving for those products is going up. So it's a bit of a drop in the bucket. And as for the domestic prices, which are still increasing but going slower, yeah, I think just over time that will push those prices up gradually as well. Eventually, this all gets passed through to rate payers. But I think just in the short term, they'll probably just eat the margin, maybe slow production a bit to try to see if they can get the price up. But that's tough to do given most of that's on contract. Calvin asks, "I saw something that America currently exports no coal to China. When will China run out of reserves? What's a long-term demand supply outlook? Still 2030 India ramp China come back?" Yeah, we're not currently exporting coal to China for a couple of reasons. One is which is China put import tariffs on US coal and retaliation to the Trump administration tariffs. But more importantly, Chinese steel industry is still in the doldrums. And that arbitrage window is completely closed. So to the extent that they're in the market for premium coal, they're getting it from Canada and Australia and paying a lower shipping cost. And that arb window won't open up for a while. When will they run out of reserves? Well, I mean, they're not going to run out of reserves, putting this in air quotes. The price will just go up. But really what the trick is for them, they have the ability to pull in additional lower quality material from Mongolia. They can pull in additional semi-soft and highball from Russia. But they still need to supplement their Shang-Cee premium production with at least 10 million tons a year of imports from some combination of Australia, Canada, or the United States. And right now that's pretty much squared firmly in the Pacific Basin. Still 2030 India ramp China come back. Not sure exactly what you mean by that, but our view is that that's China steel production declines over time India ramps up. And so far there's no change to that view at all. Although, certainly current geopolitical situations, if they escalate any further, that's a warrants we visiting there. Let's see. I think there's one more question here on in a demand destruction model. If there's prolonged conflict inflation, how it's steel and cooking co-perform, well I mean inflation, you just said it right there. Do you have an inflationary impulse at the cost level? Eventually that's going to get passed through to the consumer level until you get to a price point further downstream and you know, here we're talking for Metcol. We're really talking about steel. If steel prices get up to a point that is you know, just unsustainable for downstream demand for steel, which would be autos, white goods, construction, those sorts of things, then you'd see the demand start to pull back and that's when we get to the other side of that cycle. I don't really see that happening unless inflation gets up into the 5-6% per annum range. I think for the most part we'll try to industry will try to weather the storm and take the you know most logical shipping routes try to keep costs down through using lower cost material which is one reason we're bullish on semi-soft prices on PCI prices over the near term but I think that's going to play out over six months. We'll have plenty of time I think in the interim to address those those issues as they come. But really that's it for questions and you know Joe's not here to say goodbye but so I'll say goodbye on his behalf. We'll be back here in a couple of weeks as well and I'm sure we'll have additional questions to address from similar themes. But in the meantime please go check our workout at the coletrader.com or the coletrader.substack.com. You can follow me on Twitter @mfwater and as always for me and Joe thanks for paying attention thanks for being a part of us and thanks to the fear commodity network for everything that they do for us. We will catch you next time. Thanks guys.