Why this ASX coal stock is sinking 9% today

Stanmore Resources Ltd (ASX: SMR) shares are heading lower on Friday, giving back recent gains as conditions across energy markets shift.

At the time of writing, the Stanmore share price is down 8.80% to $2.28. That leaves the stock roughly 14% lower over the past week.

The pullback follows a strong period earlier this year, when higher coal prices and supportive sentiment helped drive the shares higher.

Here’s what is behind the move.

Ceasefire cools energy trade

The selling has been driven by a shift outside the company itself.

A ceasefire between the United States and Iran has reduced concerns about supply disruptions across global energy markets.

That change has seen money move out of energy stocks, including coal producers, as some of the recent risk premium fades.

Oil prices have already started to ease after trading near recent highs, pointing to a broader reset in the sector.

Coal prices have held up better, but listed producers are still getting caught in the same move.

Coal prices remain elevated over the year

Despite the recent pullback in the share price, the underlying commodity backdrop still looks relatively firm over a longer period.

According to Trading Economics, coking coal is still trading around US$226 per tonne in mid-April. That leaves prices modestly higher over the past month and up close to 19% over the past year.

Demand from steelmakers has also remained steady, particularly across Asia, where metallurgical coal is still widely used.

But it’s the gap that stands out. Prices have held up, yet sentiment has shifted quickly, and that is driving the recent volatility in coal stocks.

Recent performance shows the shift

Over the past week, Stanmore shares have fallen close to 14%, giving back part of the gains built earlier in the year.

Even so, the stock remains up roughly 24% over the past 12 months.

The move has tracked what has been happening across energy markets. Oil prices have eased back toward US$93 per barrel as tensions in the Middle East cool, taking some momentum out of the trade.

Foolish bottom line

The ceasefire has taken some urgency from energy prices, and that has been enough to trigger selling after a strong run.

Coking coal prices are still holding up over the year, but the focus has shifted to what comes next for the sector.

Personally, I would stay on the sidelines here.

The stock is moving with macro headlines rather than company updates, and that can change very quickly.

There are cleaner opportunities elsewhere on the ASX where geopolitics is less likely to drive the share price.

The post Why this ASX coal stock is sinking 9% today appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.