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New UserCoal: after the $100 per tonne boom, how long until the bust?
19 Oct 2016
As Australian thermal coal prices hit $100 per tonne on Tuesday for the first
time since 2012, the fuel's rally is now among the commodity's topthree bullruns on record.
The bullrun rivals the 2011 Fukushima nuclear meltown and Australian mining flood spike,
and the 2008/09 financial boom and bust.
With Australian Newcastle spot cargo prices for November , up almost 100 per cent since June to $100 per tonne, their highest since
2012, traders and analysts say a bust is inevitable.
"Of course it's not going to last. Rising prices are encouraging Chinese miners to raise output and the government, seeing how much
prices have risen, has backed down somewhat and asked for an increase in production," said Ralph Leszczynski of shipping brokerage
Banchero Costa.
However, many believe prices could keep rising until the end of the year or possibly into early 2017 as the winter season fuels demand
and miners take time to bring on more production.
The price rally for thermal coal, used to generate electricity, was triggered by a Chinese government decision to cap its mining output,
aimed at reining in rampant overcapacity, and which forced its utilities to import more coal.
The intervention cut China's mining output by around 15 per cent "and sent consumers electricity generators and steel mills back to
global markets to meet the shortfall," said Gerard Burg, senior economist at National Australia Group.
He does not expect current prices to last "too much longer" as Chinese authorities urge miners to raise output again to control spiralling
coal prices.
International exporters are also reacting to higher prices, with Glencore last week announcing it will hire more than 200 workers at its
Collinsville coal mine in Australia, which mostly exports thermal coal.
Australia's Department of Industry and Science expects thermal coal exports from Australia to rise by three million tonnes to 203 million
tonnes in fiscal 2017.
FOR NOW, IT'S RED HOT
Vertical price jumps tend to be followed by sharp downward corrections, yet many analysts believe the coming downturn will be more
gradual than the rally that preceded it.
"Increasing production comes with a lag as you need to rehire workers, do training etc," said Leszczynski.
China and other big importers like South Korea are also short of supplies ahead of winter, which many forecasters expect to be colder than
the last two.
Traders also pointed to big price rises for metallurgical coal, which has been hit by outages in Australia. This has also affected thermal coal
since both coals tend to come from the same mines.
"There's a perfect storm in coal markets. Metallurgical coal is red hot, due to outages in Australia and like in thermal coal because of
soaring Chinese imports," said a mining investment advisor in Singapore, who spoke anonymously due to the price sensitivity of the matter
Source: ET