Shares of diversified Canadian miner Teck Resources (NYSE:TECK) rose 13% in morning trading on Sept. 11. Although the stock gave back some of those gains in the early afternoon, by roughly 3:30 p.m. EDT it was still holding on to a gain of about 10%. That's a pretty good day for a company that's seen its shares fall 25% or so in 2020.
Teck mines for four commodities: oil (via the Fort Hills oil sands mine), zinc, copper, and metallurgical coal. So far 2020 has been a tough year for the company, with second-quarter adjusted earnings coming in at $0.17 per share compared to $0.88 in the same stanza of 2019. After the company noted that all of its mines were running, the second bullet point in its earnings release pretty much summed up the issues Teck is facing: "COVID-19 had a significant negative effect on prices and demand for our products and our financial results in Q2 2020."
Since all of its products are economically sensitive, the COVID-19 related economic shutdowns hit Teck hard. Which is, in a roundabout way, why investors were excited today. According to industry watchers, prices for seaborne metallurgical coal were on the rise because of increased demand from China. Although one day doesn't make a trend, if demand for met coal is picking up in China there are potential longer-term positives for Teck, which generated about 45% of revenue from this product in the first half of 2020.
China is one of the largest producers of steel in the world and a major source of demand for steel-making coal. If the country's steel mills are buying again it could have a material impact on global prices. More important, however, could be that the demand increase indicates the success of the country's reopening process. Indeed, China was one of the first countries to lock down its economy and also one of the first to reopen again. If it has progressed to the point where met coal demand is picking up again, then it isn't unrealistic to think that a similar trend might eventually arise in other countries that also ended up shuttering their economies, only later in the pandemic. Notably, Teck's second-quarter met coal sales were higher than it had originally expected, so an uptick in demand from China isn't out of line with the trends the miner has been seeing more broadly in its coal operations.
Interestingly, at least one Wall Street analyst is pretty positive about Teck's future. In addition to the China news, Scotiabank reiterated that it has a sector outperform rating on the stock. That makes complete sense if demand for one of the miner's most important products is, in fact, on the verge of heading higher. Teck wasn't alone in its price jump today, with met coal producers like Warrior Met Coal and Peabody Energy also rising, up about 6.5% each at 3:30 p.m. EDT. But Teck's shares, perhaps because of the added help of Scotiabank, were bigger gainers.