Coking coal prices are going absolutely bonkers right now, surging higher yet again after climbing by the most in five years last week.
According to the Commonwealth Bank, spot premium coking coal rose 3.7% to $US127 a tonne (FOB, Australia) on Thursday, extending the rally seen in August to 24%.
From the multi-year lows struck in February, prices have now surged by a staggering 73%.
The chart below tells you everything you need to know. Bonkers, as we said.
Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank, says prices are being driven by supply shortages in China.
“A coking coal shortage in China has emerged as highways in the coal-producing province of Shanxi were closed for repairs following heavy rainfall last month,” he wrote in a research note released on Friday.
“While transport conditions are reportedly improving, steel mills are still anxious to secure coking coal.”
Despite the breakneck rally, Dhar believes that prices are likely to remain well supported in the short-term.
“Coking coal prices could continue to increase in the short term so long as Chinese steel mill margins remain positive,” he says.
Given strength in coal and iron ore prices recently, it goes a long way to explaining recent strength in the Australian dollar.
In a note received on Thursday, Sean Callow, senior currency strategist at Westpac, said “commodity prices continue to argue for AUD dips to be shallow, with iron ore lingering around $60/tonne and coking coal prices surging”.
Iron ore and coal are Australia’s largest goods exports by dollar value.