CHART: Coking coal is exciting again

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Coking coal prices are still going nuts, continuing to surge from lows seen earlier in the year.

The chart below from HSBC tells the story. It’s going bananas! Spot prices for premium hard coking coal from Australia’s east coast are up a lazy 130% in the past three months alone.

Coking coal is indeed exciting.

“Unlike the last time we saw this sort of jump (back in 2009/10) it is not a strong demand story,” says Paul Bloxham, chief economist at HSBC. “Instead, it is in response to Chinese policy measures aimed at curbing production and improving profitability of the sector.”

Bloxham suggests the decision from Chinese authorities to cut the number of working days on coal mines down to 276 days from 330 days has been a major factor behind the price surge, assisted further by in a lift in Chinese infrastructure investment since the first quarter of year.

Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank, believes that supply disruptions within China and abroad have also contributed to the bullish price action seen in recent months.

“A domestic shortage of coking coal has helped drive seaborne prices higher recently, reflecting the weather-related closure of key coal transport routes in China. Seaborne export markets have also been constrained with operational issues at mines in Australia and Mozambique,” he wrote earlier this month.

After such a giddy run higher, both Dhar and Bloxham are of the view that prices are likely to weaken modestly in the period ahead.

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