Coal news and updates

The price of seaborne thermal coal for the vast Asian market has risen to its highest level in more than 10 months, boosted by a flurry of purchases from Chinese buyers eager to secure supplies because of a government-led clampdown on surplus capacity.

Thermal coal is used in power stations to generate electricity and is a major source of income for mining companies such as Glencore, the world’s biggest exporter. Tagged the “least loved major commodity” by many analysts, it has out been favour for years because of tumbling prices and an environmental backlash.

 

Sentiment has improved this year as prices have rebounded because of a weaker US dollar and the near doubling of the oil price, which has eased some of the deflationary pressures weighing on the coal industry. Oil is also important because it helps set the price of natural gas, which competes with thermal coal across Asia in power generation.

 

“The least loved part of the energy complex is looking in better shape than it has for several years,” said analysts at Citi in a report.

 

From a low of $49 a tonne in January, high-grade Australian thermal coal — the benchmark for the Asia market and the huge Chinese market — has gained 20 per cent to more than $59 a tonne, according to Argus, a price reporting agency.

 

In the past week, Chinese buyers have started to snap up cargoes of thermal coal in the spot market, fearing a move to rationalise domestic supplies will prove successful. The government in Beijing recently ordered coal mines to cut capacity by 16 per cent and operate for 276 days annually versus 330 days previously.

 

At the same time, shipments from Indonesia have been disrupted and utility companies in South Korea and Taiwan have also started seeking cargoes of high-grade Australian thermal coal.

 

“There are so many cuts coming through domestically that China’s consumers will probably need to engage the seaborne [or import] market,” said Tom Price, analyst at Morgan Stanley.

 

The bank expects China to import around 145m tonnes of coal this year, equivalent to 17 per cent of the global seaborne trade.

 

Analysts are divided on the outlook for prices after the recent rebound. Some believe prices could push upwards if China strictly enforces its new rules and the la Niña weather phenomenon leads to increased rainfall and affects Australian and Indonesian output. In such a scenario Citi thinks prices could rise to as much as $90 a tonne.

 

However, Morgan Stanley reckons prices are unlikely to push beyond $60 a tonne because it would lead to higher shipments from Colombia, another major producer, and encourage miners to restart mothballed projects.

 

On top of that, Mr Price said China’s electricity use was “flat” and “uninteresting” and it was only raw materials used in steel production such as coking coal and iron ore that were seeing increased demand.

 

This is widely perceived to be the result of a government-engineered credit surge earlier this year that led to a pick-up in construction activity and ultimately consumption of steel.

Source: Next Ft