- Javelin, run by ex-Goldman traders, sees recovery in 2017
- Debt-laden miners mean opportunity for `nimble' traders
Nothing lasts forever. Or so says one commodities veteran anticipating a recovery in the lowest coal prices for almost a decade.
While the biggest miners from BHP Billiton Ltd. to Anglo American Plc are selling operations to cut debt after the worst commodity rout in 16 years, Peter Bradley is setting his sights on distressed assets through Javelin Global Commodities Holdings LLP, a 22-strong company based a short stroll from Buckingham Palace in London.
His strategy is based on a conviction that prices can rebound from next year as supply stutters, while demand may rise with new power stations coming online. The reality today is different: plunging prices means the world’s major miners are cutting dividends and selling assets to stay afloat, while Arch Coal Inc., the second-largest U.S. coal producer, last month became the latest miner to file for bankruptcy.
“There are opportunities to buy mining assets,” said Bradley, Javelin’s chief executive officer and a former Goldman Sachs Group Inc. managing director. “Companies with debt problems become more inward-looking and can’t be nimble.”
Javelin started trading in June with backing from EON SE and Murray Energy Corp., the largest closely held U.S. coal company. Bradley’s business partner Spencer Sloan, also a former Goldman Sachs veteran, is the chief financial officer and chief investment officer.
The price of coal, currently used to generate 41 percent of the world’s electricity, plunged 33 percent last year in Europe, undermined by shrinking Chinese demand, tougher emissions standards and slumping natural gas, a cleaner substitute in power generation. With prices the weakest since at least 2007 and crude oil near 12-year lows, 2016 may be a good time to buy assets cheaply, Bradley said, without providing further details on his plan.
“I struggle to see how commodities can rise without a recovery in oil, given the interrelationship between oil, gas and then coal,” he said. Prices may perk up from 2017 as “there will be little supply growth and there is likely to be some further demand from new power plants coming online in Germany, the Netherlands, Korea and Taiwan,” he said.
Robert E. Murray, the 76-year-old head of Murray Energy and one of the most vocal proponents of the fuel, is expanding as others retreat, and last year bought Goldman Sachs’s Colombian coal assets and paid $1.4 billion for a stake in rival producer Foresight Energy LLP.
Javelin’s job is to find buyers for the fuel. It shipped 3 million tons of coal in the second half of 2015, more than 90 percent from Murray mines, to utilities worldwide including Electricite de France SA and RWE AG in Germany. Javelin also buys and sells in the market, and traded 16.5 million tons of coal derivatives contracts in 2015. Bradley declined to say how much Murray has invested in Javelin because the information is private.
Coal prices have fallen so low that mines are closing from the U.S. to Asia. Output from Indonesia, the largest exporter of coal in the world, fell 14 percent to 392 million tons in 2015 as miners reduced production, according to the nation’s Energy and Mineral Resources Ministry.
“I think there will be another round of cuts in Indonesia,” Bradley said. “But this will be balanced out by China importing about 30 million tons less.”
He still sees coal markets expanding, with volatile prices attracting new entrants. Coal for delivery to north-west Europe in 2017 slumped to a record $36.70 a metric ton on Wednesday, broker data show. Trading of financial contracts soared 44 percent last year to 5.3 billion tons, the most ever, according to energy consultants Prospex Research Ltd. in London.
“In Europe, coal markets are fairly mature, whereas in Asia they are less so and there are still players coming in,” he said.