The boom in coal hit ridiculous levels overnight with reports that hard coking coal prices (which started running before anything else around May of this year) had hit the highest level since 2011 – over $US300 a tonne.
At the same time thermal (steaming coal) prices hit the $US120 a tonne level in Newcastle.
Queensland top grade hard coking coal rose 6% to $US307.20 a tonne on Tuesday, and is now up close to 300% since China revealed curbs on domestic coal production six months ago. Those curbs have been relaxed in some cases, but that has yet to have an impact on prices.
That $US307.20 a tonne yesterday was up from $US289.30 a tonne on Tuesday morning, such as the madcap pace of the increase – which is on thin demand at these price levels.
Chinese coal imports have risen as a result and even though they fell to 21.58 million tonnes in October from 24.4 million in September, the total for the first 10 months of the year has topped 200 million tonnes (nearly 202 million), which is more than all of 2015
The last time coking coal traded above $US300 a tonne was in 2011 when in the wake of the terrible 2010-2011 floods in Queensland. It peaked around $US330 a tonne.
The coal market’s rebound (prices for Indonesian coal have also risen sharply) reflects the supply curbs in China. These were introduced in April in an effort to improve the profitability of the country’s heavily indebted coal industry and to cut production to more sustainable levels (the rise of renewable energy in China has cut demand for thermal coal).
That’s why the demand for thermal coal imports has soared, while prices have risen by 121% for spot steaming coal cargoes from Newcastle to $US119.95 a tonne on Monday of this week.
The surge in prices have helped producers of, all sizes, from Whitehaven Coal to BHP and Glencore, which is bringing its Integra underground mine in NSW (producing around 1.3 million tonnes of coal a year) into production as quickly as it can.
South32 has paid $US200 million and a share of any profits to the bankrupt US coal group, Peabody, for the metropolitan mine near Wollongong. South32 already has a trio of hard coking coal mines in the region.
Anglo American, which has been selling off its Australian coal mines has realised the price boom might be handy and Reuters reported this morning that the company had knocked by an offer of around $US2 billion for its Queensland mines from the Apollo investment group and other investors.
Coal industry analysts say the extra demand from China has set off a buying rush from Indian importers who are scared they will be priced out of the market. This has driven spot prices (all on small amounts of cal) higher.
A string of mining and transport problems in Australia has reduced the amount of high quality coking coal available in the spot market, forcing prices and creating a scramble for supplies, just as the floods did in 2011. That ended in tears and prices started a long plunge to lows of less than $US50 a tonne for thermal coal and well under $US90 a tonne for high quality coking coal.
Some of the demand from China is non-existent – it is being driven by commodities speculators using ‘grey market’ loans (off balance sheet) from small Chinese banks and other sources.
The same speculation drove up the prices of gold and copper in the past couple of years, which then crashed when this artificial support vanished. The same sort of punting almost crashed the Chinese stockmarket in mid-2015, so the outlook for this price surge is not good. In Australia, Whitehaven Coal CEO, Paul Flynn said the high prices would last through the summer and into 2017.
Already analysts say the current high prices means the contract prices (set via the index method) for the March quarter of 2017 for both coking and steaming coal will rise from the already high levels (around $US200 a tonne for hard coking coal for instance).
