Coal news and updates

Metallurgical coal contracts are set for the longest run of gains since quarterly deals were introduced in 2010 as China cuts output and raises steel production.

Spot prices for hard coking coal have gained almost 70 percent since the start of June to more than $140 a metric ton, surging above the third-quarter contract price of $92.50. Miners and Japanese steelmakers have agreed to a supply accord at a slight premium to the spot price the past few quarters, according to UBS Group AG. A deal above $100 for the last three months of the year would be the highest since the first half of 2015 and the third straight quarterly gain.

Coal prices are rebounding after five years of declines as China seeks to cut as much as 9 percent of its production capacity to trim industrial oversupply and curb pollution. Demand for metallurgical coal has been further boosted by the country’s rising steel output. Contract negotiations between suppliers and consumers typically take place the month before the start of a new quarter.

“Wherever the spot price is at the end of September, that will have an influence on the ultimate contract price,” Daniel Morgan, an analyst with UBS in Sydney, said by phone. “There have been supply constraints in China, while steel production has been better than anticipated. If you were to ask what has surprised the market the most in the commodity space the last few months, it’s been the strength of met coal prices.”

Spot Surge

Spot hard coking coal climbed to $141.20 a ton on Sept. 2, the highest level in more than two years, according to data from The Steel Index. Prices gained 36 percent in August. Futures on the Dalian Commodity Exchange have advanced more than 60 percent this year. Contract prices are still off their $330-a-ton record in 2011 after floods curbed supply from Australia, the world’s biggest exporter.

China produced 346.9 million tons of steel during the first seven months of the year, including record daily volumes in June, according to the National Bureau of Statistics. That compares with 343.1 million during the same period in 2015.

While metallurgical coal has gained more than 80 percent this year, there are expectations that the rally may fizzle. Citigroup Inc. predicts prices will fall amid a slowdown in China and an easing of supply constraints. The bank forecasts spot prices averaging $95 a ton during the fourth quarter, according to an Aug. 22 report.

SOurce:Bloomberg