Coking Coal Surges

Given the focus on clean energy sources, a sudden surge in the price of Coking Coal (spot) took markets by surprise last month, as it raced from around US$90 per tonne toward US$200. The trigger behind this spike appears to have been a shortfall of coking coal production, together with a revival in Steel, which forced Chinese mills bid up the price of the carbon fuel ingredient. Supply issues, though, partly reflect self-imposed cuts by Beijing in April 2016, in its directive to crackdown on pollution and to slim down the bloated Steel sector. Furthermore, output has been disrupted by downpours of rain in parts of China, as well as maintenance issues at some mines in Australia. As a consequence, it is unlikely the upward price trajectory in premium coal, which is traditionally traded under negotiated contracts, will be sustained. Certainly, 2017 forecasts for the quarterly benchmark – which tends to be at a premium over spot – suggest that a downward price correction will occur once temporary output problems are resolved.

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