Coal Futures Are Up 80% In A Month, So Morgan Stanley Upgrades Teck Resources

Coal prices have surged more than 80 percent in the past month and are close to $200/t. Met coal prices are expected to remain elevated into 2017, Morgan Stanley’s Evan L Kurtz said in a report. He upgraded the rating on Teck Resources Ltd (USA) TCK from Underweight to Equal-weight, while raising the price target from $7 to $18.

Met Coal Prices

Met coal prices have jumped ~40 percent over the past couple of weeks and are up ~80 percent over the past month. Every $1/t change in met coal prices adds C$35 million to Teck Resources’ annualized EBITDA. Going by this, the $57/t increase over the last two weeks alone have added C$2.0 billion, analyst Kurtz noted.

The change over the last two weeks alone contributes $8 per share to the company’s value, which warrants the upgrade in rating. Kurtz added that the new price target reflects “our team's LT met coal price of $126/t.”

Benefits To Balance Sheet

The current price levels could remain elevated for 6-12 months, since supply response would likely take time. “The historical pattern suggests that TCK could generate significant cash flow in the coming quarters, which could help to alleviate many of the balance sheet concerns prevalent earlier in the year,” the analyst commented.

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