The insane rally in coking coal prices is ready to reverse

Getty/Dean Purcell

The impact of domestic Chinese political decisions about its coal industry continue to reverberate through markets, pushing the price of metallurgical (coking) coal up 85% in the past month according to ANZ Research.

Daniel Hynes, ANZ’s Sydney-based senior commodity strategist, says in his latest commodity call that means “a combination of falling Chinese output, a tight seaborne market, and an unexpected pickup in demand has seen Chinese buying reach fever pitch in recent weeks.”

That means “spot prices of premium hard coking coal have hit USD200/t (CIF China), a price that hasn’t been seen since a third of the world’s supply was disrupted due to flooding in Queensland in 2011-12,” he said.

Not only are prices up 85% in the past month, the price of coking coal from Queensland is now 160% higher than it was earlier this year when it hit a record low.

After taking out 27 million tonnes of production last year Hynes says “if the Chinese government steps up its closures to meet the original target, we could see another 45mt of coking coal production closed in China this year”.

That means prices are expected to remain elevated for some time yet .

That’s especially the case given other export nations are not yet able to increase supply to meet the strong rise in prices and that “in Australia, the industry is operating at already high utilisation rates and is struggling to respond to increased Chinese demand,” Hynes said.

Australian producers will no doubt make hay while the sun shines, but the good times won’t last, Hynes said.

“Prices will be capped by weak underlying steel demand and overcapacity issues in China” he said.

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