Exxaro Resources LTD (JSE: EXX) has weathered a tumultuous year marked by a challenging market landscape. Its year-to-date share price decline of 11.09% reflects the company’s broader struggles amidst evolving energy dynamics.
After a steady decline over three quarters, the stock found a foothold, bottoming out in August and gradually initiating an upward trajectory. However, this narrative unfolds against a backdrop of significant market challenges.
The first half of 2023 brought a bearish tone to the energy sector, echoing challenges prevalent in Europe amid surplus stocks induced by milder winter temperatures. Declining gas and coal prices, coupled with the ascendancy of renewable energy sources, signalled a transformative shift impacting traditional fossil fuel demand.
Exxaro felt the impact firsthand, witnessing a 15% decrease in group revenue to R18,943 million. The coal segment, a linchpin of its operations, experienced a substantial 16% revenue dip to R18,125 million due to diminished export prices and decreased domestic and international sales volumes.
These market pressures translated into a notable 28% decline in group EBITDA, predominantly influenced by the staggering 34% slump in Coal EBITDA. Factors such as reduced commercial revenue and inflationary spikes driven by diesel and electricity tariff hikes played pivotal roles in this downturn.
Amidst these challenges, Exxaro faces a dichotomy. While the support from robust Chinese thermal coal imports offers a glimmer of hope in the short term, the looming shadows of global decarbonisation efforts cast uncertainties over its long-term business prospects.
Technical
Exxaro navigated a challenging trajectory with its share price mirroring a persistent downtrend across three quarters, tracing a descending channel pattern under the 100-day moving average.
However, a pivot emerged in August as investor interest catalysed a bottoming out, signalling a reversal. This shift sparked an uptrend, breaking free from the channel and surpassing the moving average.
Despite a minor bearish dip that aligned the share price with the 100-day moving average, bullish forces prevailed, forming a support level at R165.55 per share. Momentum surged but encountered resistance at R204.08, with overbought RSI conditions. This prompted a reversal and resulted in a sideways consolidation within a rectangle pattern, showcasing market uncertainty following the rally.
The battle between buyers and sellers within this pattern hints at an impending breakout, likely instigating a directional move. A breach below the consolidation might face a barrier at R165.55, hindering downward pressure. Conversely, a breakout above the rectangle pattern could set the stage for further upward movement, leaving the year-to-date high of R231.73 per share probable.
Summary
Exxaro, navigating rough market terrain, faces dual challenges: downside pressures from volatile coal prices with long-term uncertainties posed by global decarbonisation efforts. Despite a recent uptrend, the stock grapples with market indecision, teetering within a consolidation pattern. A potential breakout could steer Exxaro’s future direction, impacting its journey ahead.
Sources: Exxaro Resources LTD, Reuters, TradingView
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