It’s the rally that keeps on keeping on, seemingly overcoming anything in its path.
Borrowing from Superman, it’s the commodity of steel, perhaps an appropriate description given it’s a key steel-making ingredient.
The spot price for premium hard coking coal has rallied by a further 15% in the past two weeks, driven higher by unexpected operational issues at Anglo American’s German Creek coking coal mine in Queensland.
As a result, it now stands at a giddy $US245 a tonne.
The lows of $US72 a tonne seen late last year now appear to be all but a distant memory. A 240% price surge in less than 12 months!
It’s been an amazing ride, and one that Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank, believes has been as a result of “a series of unfortunate events”.
“The first trigger was flooding in China in late July, which blocked key coal transport routes and forced a coking coal shortage to develop,” he wrote in a research note released on Friday.
“The next major trigger was South32’s force majeure on coking coal shipments from its Appin coal mine.
“Rail outages in Mozambique and Australia have also tightened seaborne coking coal markets in the last few months,” he adds.
Dhar also points to resurgence in China’s manufacturing and property construction sectors, driven by a lift in fiscal stimulus from the Chinese government, along with a near 10% fall in Chinese coal output in the first three quarters of the year, as factors that have also supported prices.
While many believe that after such a breakneck rally the next stage in the price cycle will be an equally large and dramatic drop, Dhar believes that it’s too early to write off the price strength just yet, noting that while recent supply disruptions are temporary, “the cumulative impact has been significant and could cause shortage concerns to persist for another 3 to 6 months”.
This, he says, could prove to be a boon to coal producers in the period ahead.
“With Glencore and Peabody settling their fourth quarter premium coking coal contract price at $US200 a tonne, the cash windfall for coking coal miners over the next 6 months will be significant,” he says.
“The new price is more than double the contract price of $US92.50 a tonne settled last quarter.”
Not only a significant windfall for the miners, but also cash-strapped government coffers as well.
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