Coal news and updates

The ability of policymakers in Beijing to roil global commodity markets has been underlined by a breathtaking rally in a key steelmaking ingredient that has caught consumers cold, but promises a profit windfall for the struggling mining industry.

The price of premium hard coking coal has more than doubled in the past six weeks to more than $200 a tonne as supplies have dwindled and buyers have scrambled to find cargoes in the spot market.

 

Behind the surge — or “met coal mania” as it has been dubbed by one bank — are production curbs in China where the government is restricting the number of working days at domestic coal mines to 276 a year, down from 330.

 

This policy is mainly aimed at improving the profitability of its bloated and heavily indebted coal industry so it can repay loans to domestic banks. But it has also reduced output and tightened the global coking coal market. Its impact has been magnified by a string of disruptions in Australia, a leading supplier to the seaborne or export market.

 

If the price rise is sustained it could add billions of dollars to the bottom lines of the industry’s biggest producers, which include Anglo American, BHP Billiton, South 32 and Canada’s Teck. Coking coal is an important raw material used in blast furnace steel production.

 

“It’s been a perfect storm on the supply side,” said Christopher LaFemina, analyst at Jefferies.

 

Caught between an oversupplied Chinese market and faltering demand for steel, 2016 was supposed to bring more pain for the coking coal industry. But things have not worked out that way.

 

Instead of adding to last year’s 30 per cent drop, coking coal has staged a dramatic recovery, rising 164 per cent which has made it the best performing commodity of 2016.

 

“In bulk and base commodities if you get Chinese policy right you are a long way towards getting the market right,” said Colin Hamilton, head of commodities research at Macquarie.

 

China sprang its first surprise this year when policymakers, alarmed by slowing economic growth and capital flight, injected a huge amount of cash into the banking system. This boosted construction activity and demand for steelmaking materials such as iron ore and coking coal.

SOurce:FT.com