Strong demand and tight supply have sent coal prices to record highs this year.
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ASX coal shares may not be everyone’s cup of tea.
ESG-focused investors may choose to look elsewhere over concerns that the coal being dug out of the Earth and sold both domestically and internationally is adding to greenhouse gas emissions.
While those concerns are valid, global demand for coal remains massive, with coking coal used for steel production, and nations including India and China among the nations rolling out new coal-fired power plants requiring thermal coal.
And much of the coal produced in Australia is high quality, burning hotter and cleaner than lower quality products sourced elsewhere.
Russia’s war in Ukraine saw ASX coal shares soar
Coal prices reached all-time highs in the wake of Russia’s invasion of Ukraine, sending ASX coal shares soaring.
Western Europe is not only heavily reliant on Russian oil and gas, the nations source much of their coal from Russia as well. Before the war, Poland imported some 90% of its coal from Russia.
With many nations now working to ween themselves off Russian energy, ASX coal shares have received some international attention as potentially filling the void.
While they’ve expressed a willingness to do what they can, it takes years to get new projects to the production stage or significantly ramp up production from existing projects.
Meaning high coal prices are likely here for a goodly while yet.
Australia needs coal power stations back online
Despite significant investment in renewables, Australia also remains highly dependent on coal – and the ASX coal shares that dig it up – to keep the lights on.
In fact, coal is the top energy provider Down Under.
According to the Australian Government, coal accounts for about 54% of Australia’s electricity generation, followed by gas at 20%.
With electricity prices already soaring, and driven still higher by the unplanned shutdown of some coal-fired power stations, Resources Minister Madeleine King sounded a call to action.
According to King (speaking on ABC radio):
In the very short term, what we really need to do is to have the coal power stations come back online because that is the missing piece of the puzzle right now. There’s been unplanned outages for many reasons, many beyond the control of those operators and I do accept that, but I hope they’re doing their best to make sure this power source comes online as well.
It is the coal companies themselves, and the operators of the power stations, that need to get these power stations back online. It’s 30% of the energy capacity taken out of the mix because of unforeseen circumstances in many respects.
How have these ASX coal shares been performing
Amid the tight supplies and strong demand, ASX coal shares have been among the top performers on the index.
Year-to-date, the Whitehaven Coal Ltd (ASX: WHC) share price has soared by 96%, New Hope Corporation Limited (ASX: NHC) shares are up 69%, and the Yancoal Australia Ltd (ASX: YAL) share price is up an eyewatering 114% so far in 2022.
For some context, the All Ordinaries Index (ASX: XAO) is down 3% this calendar year.
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