Coal Is the Hottest Thing Right Now for Warsaw Stock Speculators

(Bloomberg) -- Coal has emerged as an unlikely hot bet among Warsaw retail stock traders.

JSW SA, a loss-making Polish supplier of coal for steelmaking, has become the new focus for investors as they switch out of small-cap stocks that soared amid enthusiasm about their responses to the coronavirus. The attraction isn’t immediately obvious: JSW is battling high labor costs and strong unions, lower demand for its coking coal during the lockdown and a Covid-19 outbreak among employees that disrupted production in March to May.

JSW has become Warsaw’s most-traded stock in recent sessions, whipsawing on the large volumes changing hands. It soared by a record 34% on Sept. 7, only to drop 7.2% the next day. Most of the orders for shares have been small, suggesting they are from individual Poles, rather than big institutions.

Major money managers have scaled back on coal assets for environmental reasons, but this isn’t deterring Poland’s mom and pop investors, who have taken a shine to a stock that was reduced to the smallest in the local WIG20 benchmark of blue chips.

Their bets have been encouraged by the European Union’s decision to keep coking coal on its critical raw materials list, along with government undertakings of aid for JSW. A buy rating from Banco Santander SA, suggesting JSW may benefit from disruptions to Australian supplies caused by cyclones, also spurred gains.

“The recent spike in volumes was caused mainly by retail investors reacting to several factors that seem supportive for this battered stock,” Jakub Szkopek, an analyst at MBank SA, said by email. “Institutional investors have avoided JSW for some time, and they’re in no hurry to return.”

Investors wagering on JSW may also have short memories.

The miner made its market debut in 2011 after an initial public offering that saw the stock snapped up by more than 168,000 Poles. Some were left regretting their purchases as the miner slid from an IPO price of 136 zloty to as low as 9.36 zloty as it fought bankruptcy in 2016. Its weak performance prompted the state to end its “civil shareholding” program, which encouraged citizens to participate in privatizations.

“The company still faces pressure on earnings from lower coal prices and reduced demand from steel makers,” Lukasz Rudnik, an analyst at Trigon Dom Maklerski SA, said by email. “There is also no decision about the future of ArcelorMittal’s unit in Poland, which was the key buyer of JSW’s coal. In such a situation betting on state aid and cyclones without firm signals of how the company intends to cut its costs is risky.”

JSW was 2.8% higher as of 12:35 p.m. in Warsaw Wednesday.

©2020 Bloomberg L.P.