Coking coal prices are exploding higher, more than doubling since February

Photo by China Photos/Getty Images

Coking coal prices are exploding higher, as seen the chart below.

Enormous. If you stare too long you may need a neck brace.

Since hitting a multi-year nadir in early February, Metal Bulletin’s premium coking coal index has gone ballistic, more than doubling in price. From the start of August, it’s put on more than 60% alone.

According to Vivek Dhar, a mining and energy analyst at the Commonwealth Bank, the huge jump in spot prices continues to reflect a lift in Chinese steel production and supply disruptions, both in China and in seaborne markets.

“China‚Äôs coking coal imports fell by 33% y/y to 4.5 million tonnes in July,” he wrote on Wednesday.

“The slump in coking coal imports in July is not indicative of a weaker demand environment, particularly given the material increase in coking coal prices in the last month.

“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 adds.

Looking ahead, Dhar expects the weakness in Chinese coking coal imports to reverse in August and September to “reflect the current supply-demand dynamics”.

After such a phenomenal run for spot prices, the question now is how long, and by how far, prices can continue to surge.

Perhaps hinting that supply disruptions are starting to ease, coking coal futures traded on the Dalian Commodities Exchange have tumbled on Wednesday, currently sitting down 4.76% at 1,210 yuan.

Like spot prices, the January 2017 contract has doubled in value from the lows seen earlier this year.

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