Exxaro Resources Limited (JSE: EXX) experienced a minor dip of approximately 2.5% this week. Despite this short-term fluctuation, the company maintains a steady trajectory throughout the month. However, there’s a discernible challenge looming as it treads on crucial technical levels, possibly indicating a shift in its longstanding upward trend.
Acknowledging prevailing market conditions, Exxaro notes that thermal coal prices face pressure due to subdued demand in Europe and Northeast Asia. These regions are well-stocked, and the prominence of robust renewable energy sources further compounds the demand challenges. Anticipating the road ahead, the company foresees its total coal production remaining stable in the upcoming reporting period, with sales volumes expected to contract by 2%.
Amidst this backdrop, a ray of optimism emerges. South Africa’s state-owned rail and ports entity, Transnet, announces plans to enhance its coal export infrastructure. By adding 14 extra trains weekly to the primary coal export corridor, there’s a potential doubling of capacity. This development offers a glimmer of hope for Exxaro, which has grappled with coal transportation bottlenecks due to insufficient rail capacity. As the wheels of progress turn, this positive shift could play a pivotal role in reshaping Exxaro’s journey in the coal market.
On the 1D chart, an ascending channel has formed, but a recent contraction has resulted in a breach of the dynamic support of the channel. The 50-SMA (blue line) offers support at R185.85, which could underpin a bullish attempt at a retracement, which is currently in play and retesting the channel breakdown level.
If the retracement sustains and falls back within the channel range, resistance at R198.59 could come into play at the 61.8% Fibonacci retracement golden ratio. While this could offer stern resistance, a breakdown could see the price retest the prior highs at R203.74 in the upcoming sessions.
However, if the price fails to breach resistance at R198.59, the initial breakdown could persist into a longer-term downtrend. Below the 50-SMA, support exists at R183.09 and R174.89, at a point of convergence with the 100-SMA, which could hold some buyers in the coming weeks should a downtrend emerge from the current setup.
Exxaro Resources faces a critical technical setup, as an ascending channel breakdown is undergoing a retest, which could result in a confirmation of a new downtrend if the price fails to exceed resistance at R198.59 in the upcoming sessions.
Sources: Koyfin, Tradingview, Exxaro Resources Limited
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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