Whitehaven Coal up 270%: Will it Trade Higher

Last week, a lot was said about Australia adopting a target of net zero emissions by 2050 with part of the discussion centred on coal fired power stations. The challenge Australia and the world has is whether renewable energy sources can meet the full requirement to achieve net zero emissions.

Will demand for coal create opportunities in 2022?

Regardless of what you think about coal as a resource, it has certainly performed very well in the last year with pricing rising from around US$60 a ton to over US$200 a ton although it has eased off slightly in the last month. That said, I believe this pullback is only temporary, as stockpiles around the world are low and given that winter is not too far away for Europe, the US and China, demand will increase.

It may surprise some that Japan is our largest customer of coal while China comes in second although China is now getting its coal from Russia rather than Australia, which is likely to continue. Other Asian countries like India, Korea and Taiwan among others buy coal from Australia, so any decrease in exports to China maybe offset.

Australian companies are well are placed to benefit from the increased demand for coal with Whitehaven Coal up earlier last month almost 300 per cent since September 2020. New Hope Coal and Yancoal Australia have also benefited as both were up over 100 per cent since September 2020 prior to the recent dip in price.

That said, all three stocks have pulled back at present, which is exciting news for investors, as I believe they will all do well in the first half of 2022. Given this, I recommend investors sit back and wait for a month or so and then look at these stocks with a view to entering once price stops falling.

What were the best and worst performing sectors last week?

The best performing sectors included Healthcare up 1.32 per cent followed by Communication Services up 0.48 per cent and Consumer Discretionary down 0.35 per cent. The worst performing sectors included Consumer Staples down 4.06 per cent followed by Utilities down 2.98 percent and Materials down 2.16 per cent.

The best performers in the S&P/ASX top 100 stocks included Reliance Worldwide up 11.18 per cent followed by Reece up 9.95 per cent and Lynas Rare Earths up 7.16 per cent. The worst performing stocks includes the a2 Milk Company down 9.29 per cent followed by Aurizon down 7.67 per cent and AMP down 7.30 per cent.

What's next for the Australian share market?

While the Australian stock market traded up again last week achieving its highest level in the last month, it fell away in the second half of the week to close lower than it opened. Interestingly, Fridays fall saw the All Ordinaries Index close down 1.3 per cent from where it opened before trading lower than the prior week with the fall signalling that the indecision in the market over the last few weeks is continuing.

If we look at the 20 trading days during October, the All Ordinaries Index closed just 0.12 per cent higher with the market closing lower than it opened on ten of those days.

Looking at the top 20 stocks, 18 ended the week in the red while 11 ended the month in the red and if we narrow this down to the ten largest companies, half ended the month in the red. The largest gain was Newcrest up almost 10 per cent while the largest fall was RIO down almost 10 per cent.

As you can see, the market was split pretty evenly during October and as I mentioned in my last report, given the sustained indecision I believed the Australian stock market could experience a down week, which is what occurred. As such, I would not be surprised to see the market fall away again this week.

As I continue to say, right now it will pay to be patient, as there will be some great purchasing opportunities in the market once it turns to trend up.

For now, good luck and good trading.

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