Coal makes comeback
Experts credit rising coal prices to higher demand and lower supply
Coal, one of the world's oldest energy sources, is making a comeback and has found its way to the Singapore Exchange (SGX).
On Dec 12, Indonesian-based coal mining company Golden Energy and Resources (Gear) was listed on the SGX mainboard.
Gear is the largest of the four coal mining companies listed on SGX by market capitalisation - $1.6 billion at listing.
The majority of Indonesia's coals occur on the islands of Kalimantan and Sumatra - where the four SGX-listed coal miners are exploring, developing and producing thermal coal.
Modern large-scale mining of coal deposits in Indonesia began in the late 1980s and has since grown exponentially.
Platts reported that Indonesia remained the largest supplier of thermal coal to China, shipping 5.15 million mt (million tonnes), more than double the amount in November last year.
It has been tough for coal in recent years, although prices are showing signs of recovering.
The recent Paris climate agreement, signed by nearly 200 countries, called for big cuts in carbon emissions from burning fossil fuels, such as coal.
But two factors are driving up prices, wrote Mr Kim Iskyan, founder of Truewealth Publishing, a Singapore-based independent investment research company, in a blog post in July.
First, supply is down. China, the world's largest coal supplier, is paring down supply to reduce pollution levels.
The US, the second largest supplier, has seen production fall to its lowest since 1981 as many coal companies have gone bankrupt.
A key point in US President-elect Donald Trump campaign's energy and economic plan has been the rejuvenation of the US coal industry.
Demand from developing countries is expected. South-east Asia will see a demand growth of 7.8 per cent a year.
Investing in coal mining companies is more attractive but there are caveats, noted Mr Iskyan.
He told The New Paper: "It is far easier to earn a good return if you're investing with the macro winds at your back.
"A strong coal price environment is a huge boost to coal companies, although it by no means suggests that all coal shares will appreciate."
SGX-listed coal companies are still positive about the future.
In a press release to announce third-quarter results, Mr Fuganto Widjaja, executive director and group CEO of Gear, said they are "deeply encouraged" by the prospects of the coal market.
"We have successfully weathered the downturn in the coal industry from 2011 to present, increasing our production steadily and remaining operationally profitable through the troughs of the coal cycle..."
In a November press release to announce third-quarter results, Geo Energy Resources CEO Tung Kum Hon said the long-term outlook for the coal industry is "hugely encouraging".
He also noted China's policy of reducing its domestic coal production by cutting the number of days allowed for mining from 330 to 276 days has caused coal prices to rally.
He said: "One key focus going forward will be maintaining our current low production cost."
Mr Geoff Howie, SGX market strategist, wrote in a market update on Dec 15 that the minerals industry offers investors opportunities for substantial returns, but also the possibility of losses.
He said: "For most minerals, exploration is expensive and the consequence of a failed exploration is a financial loss.
"Success in finding a new mineral deposit or additional mineralisation at an existing mine generates an asset that adds value to a company.
"Small companies with limited financial resources are relatively high risk/reward investment options because they cannot survive many failed explorations.
"However, they may generate large investment rewards if they are successful in exploration."
Investors, look at natural gas for cleaner form of energy
There are options for investors interested in cleaner forms of energy. They can consider natural gas, which produces 50 per cent less carbon dioxide than coal.
Last month, SGX and the Tokyo Commodity Exchange signed a Memorandum of Understanding to jointly develop the Asian liquefied natural gas (LNG) market.
Asia is the largest source of global LNG demand and this cooperation is a step towards developing a more liquid and transparent market for LNG as the industry moves away from long-term oil-linked contracts, said SGX in a release last month.
There is the option of trading in the SGX-listed electricity futures, based on Singapore's electricity market, which is 90 per cent dependent on natural gas. Listed last year, it is Asia's first fully developed energy market and provides options for consumers to procure and hedge electricity.
Currently, most of Singapore's natural gas is imported through pipelines from Malaysia and Indonesia, and is typically linked to the market price of high sulfur fuel oil.
The natural gas is primarily used by generation companies (gencos) to generate the Republic's electricity, which is bought and sold through the National Electricity Market of Singapore, the wholesale electricity market (spot market) operated by the Energy Market Company.
Futures are standardised contracts listed on an exchange.
Buyers and sellers agree to buy or sell a quantity of a commodity at a pre-determined price, for delivery and payment at a later date.
In this case, the electricity industry and consumers can buy and sell electricity into the future at a pre-determined price, reducing risk of higher prices.
There is also little liquidity risk given the participation of gencos.