Coking coal prices are still going nuts, spiraling higher as markets price in the likelihood of lengthy supply disruptions to Queensland’s coal industry as a result of damage caused by Cyclone Debbie.
Early estimates suggests that it will take week’s for the industry and supply-chains to return to normal.
As a result, it’s whipped up a speculative frenzy nearly as wild as Debbie itself, evoking memories of supply disruptions caused by Cyclone Yasi some six years ago which saw spot prices surge to $US300 a tonne at the time.
On Thursday, the spot price for premium coking coal jumped by a further 6% to $US187.50 a tonne (FOB), extending its rally from last week to 25%.
A big move in anyone’s language, fuelled by concern that around half of global coking coal seaborne supply is currently offline.
While there are similarities between now and 2011 — none less than the damage to key infrastructure was caused by a cyclone — Macquarie Bank think that the price response on this occasion will be very different this time to what was seen in the past.
“To be clear, in the short term the spot price for metallurgical coal will certainly go up, and perhaps quite rapidly,” it says.
“However, given actual damage to mines is limited, the overall production loss from plan may be relatively negligible. And assuming full capacity is restored on the rails in time, there should be a period of shipment catch-up after the outage.
“Add to this the fact that US metallurgical coal is already back in the market plus supply in China looks ample at present, while buyers are less ‘brand sensitive’ than in the past.”
As such, Macquarie expects that the current price move will likely resemble a spike when it’s all said and done, rather than mark the start of prolonged of elevated prices.
The view of Macquarie is similar to that of Morgan Stanley who said in a note earlier this week that they were not getting caught up in the bullish coking coal price action.
“Are you getting lots of calls on this Queensland flood event? Are people telling you that, ‘hey, now’s the time for met-coal’? Have noticed that recently dead equities are now being flagged as having ‘plenty of upside’?,” said Tom Price and Brendan Fitzpatrick, equity analysts at Morgan Stanley.
“Yep, time for some perspective.
“This is mostly short-term noise and the not the supply-side changing, so we’re not changing anything in our models or price forecasts.”
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