Stocks in the Coal Sector Set to Rise on Increased Coal Consumption

With the International Energy Agency (IEA) reporting strong growth in coal consumption for 2024 and China reaching record-high coal imports this September now could be the right time to take a closer look at some of the biggest players in the Australian coal sector. However, before diving in, it’s important to assess whether coal’s resurgence has staying power or if it’s a short-lived trend.

What is driving the increase in coal consumption?

Multiple factors, including delays in renewable energy projects and rising demand from countries like India and China are driving coal's momentum. Origin Energy has noted that the shift to renewables is not happening fast enough, leading Australia to reconsider the planned closures of major coal plants like the Eraring Power Station to ensure energy reliability. While efforts to expand renewable capacity are ongoing, delays in key projects like the Snowy 2.0 mean coal could remain a critical part of the energy mix for longer than expected.

So, with global markets facing challenges in their energy transition and growing demand from power-hungry economies, timing your entry into the coal sector could present significant opportunities, especially given the volatility in this space. Here are three stocks worth keeping an eye on.

Whitehaven Coal (WHC)

A leading Australian coal producer specialising in high-quality thermal coal, Whitehaven has experienced a relatively stagnant share price since early 2023. The stock has been consolidating in a range between $6 and $9. With the stock testing $6 in September and finding a barrage of buyers, it’s wise to assume the price is heading back toward $9, where resistance is expected. However, a breakout above this level would be a bullish signal, offering strong long-term upside potential.

New Hope Corporation (NHC)

Specialising in coal mining and exploration, New Hope’s stock has been in a downtrend since its peak in October 2022. However, the stock appears to have found strong support around $4.20, testing this level in September this year. This was followed by a wave of buyers pushing the price up almost 30 per cent in a matter of weeks. Therefore, if buyer strength holds, the stock could push toward $6.50, representing healthy upside potential.

Yancoal (YAL)

As one of Australia’s largest coal producers, Yancoal holds long-term contracts with key Asian markets, including China and Japan. However, its share price has been range-bound between $4 and $7 since September 2022. A decisive break above $7 would confirm buyer strength and could signal a move toward $12, presenting significant upside potential.

What were the best and worst-performing sectors last week?

The best-performing sectors included Financials, up 4.07 per cent followed by Health Care up 1.01 per cent and Communication Services up 0.54 per cent. The worst-performing sectors included Utilities, down 4.42 per cent, followed by Energy, down 3.92 per cent and Information Technology, down 3.54 per cent.

The best performing stocks in the ASX top 100 included Bank of Queensland, up 14.54 per cent, followed by AMP Limited, up 12.41 per cent and Evolution Mining, up 10.28 per cent. The worst-performing stocks included Flight Centre Travel, down 21.43 per cent, followed by Mineral Resources, down 9.97 per cent, and A2 Milk, down 8.53 per cent.

What's next for the Australian stock market?

Early last week, buyers took control, pushing the All Ordinaries index up nearly two per cent. However, by Friday, eager sellers stepped in, erasing over half of the weekly gains and leaving the index up just over half a per cent for the week.

Despite the late-week selling, the index still posted a positive close, breaking a long-standing pattern from March 2023, where four consecutive weekly gains were followed by a pullback. Recognising shifts in market behaviour is crucial, and this one is significant. While it’s easy to see this as a bullish signal, it could actually point to the opposite. Let me explain.

Sustainable market moves tend to follow a steady rhythm. When a market climbs without the presence of sellers, it can drift into a euphoric state—a stage often followed by sharp downturns. The longer the market rises without a pullback, the higher the chances of a strong reversal. If sellers don’t step in soon to bring the market back to a more sustainable pace, we could see a sharp drop to 8,300 points.

If that decline gains momentum, it could extend further to 7,900 points, a well-tested support level this year. One potential trigger for increased volatility is the upcoming US presidential election next month.

Still, there’s no denying that the long-term character of the market is changing. October, historically a down month, has so far delivered gains, defying expectations. September, typically the worst-performing month of the year, also saw gains.

Given how the bulls have continued to break these historical patterns, it’s important to ride the upside momentum while it lasts. Remember, you need to trade based on what the market is doing now, not what you think it should do. However, stay prepared for any short-term downturns, as they are well overdue.

For now, good luck and good trading.

Dale Gillham is the Chief Analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of the bestselling and award-winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good bookstores and online.