August 16, 2023
“Coal-OBT” Featuring Dr. Hongcen Wei, Goldman Sachs
Today we had the very exciting and highly interesting opportunity to visit with Dr. Hongcen Wei, Commodities Strategist in Global Investment Research at Goldman Sachs. Hongcen joined Goldman two plus years ago from the University of Chicago where he taught math for many years and completed his PhD in Economics. Hongcen and his team have led the effort in re-launching Goldman’s global macro coal research coverage. We have long been interested in hosting a show focused on coal and were thrilled to connect with Hongcen to discuss his team’s research, global coal markets, coal consumption and related trends all around the world, and coal’s huge impact on the energy transition.
In our conversation, Hongcen first shares details about his background and personal interest in coal and commodities in particular as the “in-between” of economics and finance. Hongcen then provides context for Goldman’s decision to re-launch coverage including coal’s role in the energy transition discussion, global coal demand and the obvious implications for natural gas use, and the revival of the coal market in the midst of an energy crisis. We discussed the global coal export/import market (about 1 billion of the 8 billion tons consumed annually) and its unique dynamics and major players, coal grade variations and the implications for emissions and power plant efficiency, and coal price volatility (especially in recent years). Hongcen walked us through a mini presentation outlining Goldman’s three main coverage themes: “reroute, rebalance, and revival” (slides linked here). We also discuss the data challenges of forecasting coal prices, the potential risks including shifts in domestic prices, changes in export dynamics and long-term climate policy concerns, the trajectory of coal demand with China’s significant influence over the next decade, and more. Hongcen was more than patient with our plethora of questions and we greatly enjoyed the discussion. We have been remiss in not talking more about coal on COBT so we were elated to have this important discussion.
Mike Bradley kicked us off by highlighting that this was a light economic calendar week with traders mostly focused on July retail sales, which printed a little hotter than expected and are keeping bonds yields elevated, pressuring the Federal Reserve to keep interest rates higher for longer. Shifting to commodities, he flagged that crude oil prices have been under pressure this week due to weaker than expected economic stats out of China which looks to be temporarily reversing 2H’23 global oil “supply” deficit concerns back to near-term “demand” concerns. He also discussed the spike in European natural prices (+30%) over concerns of a possible Australian LNG worker strike in coming weeks which could affect 10% of global LNG exports. From an equity market standpoint, he highlighted that most of the S&P 500 companies have already reported Q2 results, and that this week would be dominated by large box retailers, which would provide a look at the health of US consumers. He rounded out the conversation by highlighting the huge relative performance disparity between global coal prices and a basket of US coal equities over the last two years. Arjun Murti prepared us for the discussion with Hongcen with a historical view of coal’s supply and demand dynamics, drawing parallels between coal and the oil and gas sectors and highlighting lessons oil and gas companies can learn from coal.
Thanks again to Hongcen for joining us today and our best to you all!
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