Rudi’s View: Coal, Copper, Car Group & More

Rudi's View | Mar 27 2025

By Rudi Filapek-Vandyck, Editor

US import tariffs don't have to be implemented (yet) to have an impact, as investors in Australia are witnessing on a daily basis now.

Some of the heaviest hits include share prices in ASX-listed coal producers, with Coronado Global Resources ((CRN)) in particular feeling the selling pressure, though it's not as if shareholders in New Hope Corp ((NHC)), Stanmore Resources ((SMR), Whitehaven Coal ((WHC)) or Yancoal Australia ((YAL)) have had lots to smile about either of late.

This is quite surprising from several angles, starting with share prices that had already reset lower over the past two years. Valuations put forward by commodity sector analysts are well, well, well above share prices, as they were a month ago during and after the February results season.

Let's just say that what looked "cheap" and "attractive" only a few weeks ago, has become a lot cheap-er and more attractive since then, at least if you're one of those died-in-the-wool value investors, and there are plenty of those around.

Needless to say, this weakness that has gripped the industry has taken most by surprise, including those analysts whose job it is to keep an eye on things and generate forecasts and valuation estimates for those companies exposed.

So what's happening? What has all of a sudden changed?

Two words: Trump (tariffs) and China (re-calibrating its steel industry). The combination of these two dominant forces is redirecting steel exports and reducing demand for coal at the same time and, at least in the short term, coal prices have fallen out of bed.

Every commodity investor knows when this happens, share prices won't ignore the pull downwards, and they haven't.

This is where things get interesting. Analysts covering the sector remain convinced current pricing weakness will not last, as there are plenty of supportive factors in play, such as India ramping up its steel production and restricting coal exports, plus weaker prices are approaching cost curve support, but this tells us nothing about the timing of the next price recovery.

So while most are inclined to suggest today's beaten-down share prices look excellent "value", as long as investors have the stomach and the patience to weather out the current downturn, they also acknowledge there remains potential for more negative news, in particular if weaker coal prices take longer to recover.

Within this context, we note Bell Potter updated on Coronado Global Resources on Thursday morning with the explicit warning that if the price for metallurgical coal was to remain lower-for-longer, this could soon translate into a really nasty event for the miner which might find it impossible to service debt and pay the owners of US$400m in 9.25% senior secured notes that expire in 2029.

In simple layman terms this means persistent weak pricing for coal can force the miner into raising capital or finding alternative ways to remain sufficiently liquid.

As per always, such concerns might be premature at this stage and I most definitely remember Whitehaven Coal years ago was facing the similar threat and nothing nasty ever happened, instead that share price went through a very strong recovery phase next.

But the share market is not one to take a wait-and-see approach, which easily explains why Coronado shares are trading well, well, well below valuations and price targets put forward by analysts. Then again, Bell Potter's update, also incorporating cheaper coal pricing, has lowered this broker's price target for the stock to 50c from 95c prior.

That adjustment suggests the current share price, wallowing around 34c looks, indeed, ready for bottom feeders to move in, but probably not until coal prices have stabilised, and the risk of a capital raising has been negated.

Coronado is scheduled to publish its March 2025 quarterly production update on April 24. That'll be one event attracting extra attention, all else remaining equal.

The impact from Trump tariffs on the commodities sector is by no means limited to coal. A recent update by Morgan Stanley suggests a 25% tariff on US imports of copper is likely to create a relative premium for prices paid inside the USA versus the rest of the world.

Doesn't sound smart or beneficial, does it?

The twist in the copper story is that Morgan Stanley does not predict copper pricing on Comex (New York) will rise by 25%, but more so that contracts traded in London might fall by that much as the demand from the US affecting supply from the rest of the world will evaporate.

And that, I am willing to personally bet, won't be the only twist in this tale for commodities and markets in the weeks and months ahead.

For what it's worth, commodity analysts at Citi have re-iterated their Buy ratings for Whitehaven Coal and Stanmore Resources. They don't think current weak prices can last.