By my guess, the media’s post-election commentary would now tally to the hundreds of thousands of words.
About how the pre-polling got it all wrong. And about which policies decided the election outcome, thereby sealing the opposition’s fate.
Beyond all that, though, is one key thing. That is, if you followed the experts’ analysis, like me, you too would have got the result wrong.
The result, they argued, was a foregone conclusion. So much so, that one of the sports betting agencies paid out punters before the election result.
In some way, though, I guess we can all fall into the trap. Nobody has enough time to pore over every article or piece of research.
So without meaning to, we absorb the headlines and the general consensus. Had you had time to research it yourself, however, you might have come to a completely different result.
The same applies to the markets.
Have you ever sold shares based on someone else’s analysis, only for the share price to soar? Or, bought into someone else’s pick, just before it tanks?
Yep, we’ve all been there and done that.
One sector that illustrates this is coal.
With the huge boom in iron ore after the GFC, coal became the forgotten child. Yet, coal is Australia’s second largest export — only a fraction behind iron ore.
If you followed the consensus, though, coal is already a thing of the past.
In the campaign, one politician even claimed our vast coal reserves to be ‘stranded assets’. Meaning that the value of coal was so impaired (due to climate change), that it was no longer viable to extract.
It is a view about coal that has been around for a while.
As much as a decade ago, some analysts started to describe coal mining as a ‘sunset’ industry. That is, an old industry, in decline.
And fair play to those analysts. If you look at the following chart of Whitehaven Coal Ltd [ASX:WHC], for a good part, they were right.
Whitehaven Coal — monthly share price
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From 2011 to 2016, Whitehaven’s share price only headed one way…down.
Trading from a peak nearing $7.50, its share price bottomed out at less than 50 cents — a whopping 90%-plus fall.
Yet from 2016, the share price did a complete about-face. Those that had the pluck to buy, saw the share price jump more than 10 times in price. A handy move in anyone’s language, let alone in a little over two years.
And Whitehaven is no small company. Even with its recent share price closer to $4, its market cap is around $6.5 billion.
As we are now discovering, coal is anything but dead.
Sure enough, at some point in the future, another energy source might completely replace thermal coal. For now, though, coal is — and will remain for decades to come — a key part of the global energy mix.
The map below shows HELE power plants, for both Australia and our Asian neighbours. If HELE is new to you, it is the abbreviation for ‘high efficiency, low emissions’ coal-fired generation.
Source: Minerals Council of Australia
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Coal is anything but dead
As you can see, China already has 579 HELE coal-fired power stations, with another 575 planned for the future (or under construction).
With three existing HELE plants, Indonesia has plans for 32 new plants. While India, with 49 plants, has plans to build almost 400 new HELE plants.
My bet is that they are not building these new efficient coal-fired power stations only to tear them down soon after.
Whoever is spending that capital will be basing their investment on a multi-decade period of returns. Yet against this backdrop, if you followed the consensus, you could only think the coal market is dead.
Only yesterday, The Australian reported that the re-elected government is planning to fast-track a newer lower emission coal plant. In doing so, however, it is not walking away from the Paris Agreement. It is still aiming to reach its 2030 targets.
The government will also conduct feasibility studies into building a new HELE plant in Queensland. It is also looking to use more gas as older coal-powered plants close.
Meaning that gas will also be a key part of the energy mix. Yet it too is another fossil fuel, supposed to be on the outer.
This shows that not everything is set in stone. Nobody can say with any certainty what the energy grid will look like 20 or 30 years from now. Nor the composition of any other market, for that matter.
It also shows something else. Something you might have proved to yourself already. That is, that your own analysis might just be right. And all those talking heads, no matter how convincing, could just as well be wrong.
All the best,
Editor, Options Trader
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