Coal demand to remain resilient amid tight power supply

From AB Capital's The Opening Bell: Three Moves

Event

The International Energy Agency (IEA) expects Philippine coal demand to remain resilient as coal plants operate at high load factors amid rising power demand and supply constraints. Coal demand could reach 54 million tons by 2030, up 15%, while the Department of Energy (DOE)'s coal transition program could facilitate 3-5GW of additional baseload capacity.

View

The outlook supports continued reliance on coal as power demand grows and baseload supply remains constrained. High utilization should sustain near-term coal consumption, while potential new capacity points to longer-term demand. For Semirara Mining and Power Corp. (SCC), this strengthens the case for continuity of its coal mining operations, although we note that the DOE has yet to show urgency in resolving the pending coal operating contract (COC).

Catalyst

The Semirara COC auction remains the key catalyst. Even an award on less favorable terms, i.e. larger government share and larger required domestic allocation, than the current contract would remove the binary risk around SCC's mining operations and provide greater earnings visibility.

Action

We see this as positive for coal-exposed names, with SCC offering the most potential upside on a successful COC renewal. More broadly, sustained high utilization should support earnings for existing coal-fired gencos, while the potential 3-5GW pipeline could provide upside optionality for genco capacity growth.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.