After years of pain, coal becomes one of the hottest commodities of 2016
Henning Gloystein
Less than a year after the coal industry was declared to be in terminal decline, the fossil fuel has staged its steepest price rally in over half a decade, making it one of the hottest major commodities.
Cargo prices for Australian thermal coal from its Newcastle terminal, seen as the Asian benchmark, have soared over 35 per cent since mid-June to more than one-year highs of almost $US70 a tonne, pushed by surprise increases in Chinese imports.
Prices for Australian thermal coa have soared over 35 per cent since mid-June, thanks to a surprise rise in Chinese imports. Photo: Robert Rough
"Coal markets, after five years of declining prices, appear to have found a bottom in the first quarter," Sydney-based Whitehaven Coal said on Thursday, as its shares hit a three-year high on the release of its annual results.
"Reasons for the increase in prices include mine closures in Indonesia, United States and Australia and policy change by Chinese authorities," Whitehaven said, adding it was confident that coal prices will rise. RELATED CONTENT
China has limited its coal production to 276 days a year, which cut its output by 16 per cent, and provided funding to assist coal miners to exit the industry and shut down mines, Whitehaven explained.
Goldman Sachs, reversing a gloomy outlook it issued last September, said this week restrictions on domestic production by Chinese regulators had turned coal "into one of the best performing commodities so far this year."
Global mining companies like Glencore and Anglo American, but also more regional players like Whitehaven and Thailand's Banpu, are reaping the benefits. All four have seen their shares rise sharply.
Banpu, which operates several export mines across Asia-Pacific, said this week that it expects to sell its 2016 coal supplies at an average price of over $US50 a tonne, up from a previous target of $US47 to $US48 per tonne.
The price recovery is an unexpected boon for miners, who were hit hard by a years-long downturn, and stands in sharp contrast to previous calls by Goldman and the International Energy Agency (IEA), who said last year that coal was in terminal decline.
As a result of China's surprise move, Goldman said there was now "support (for) global prices for the foreseeable future."
The bank raised its three, six and 12 month price forecasts to $US65/$US62/$US60 per tonne for Newcastle coal, up as much as 38 per cent from its previous outlook. Australian mines the big winners
Coal has also been getting support from Asian industrial powerhouses Japan and South Korea, while demand remains firm in India, Vietnam and the Philippines.
Japan and South Korea have both said they want to expand future coal imports while reducing more expensive imports of liquefied natural gas (LNG).
China's power consumption has also risen against expectations, jumping 8.2 per cent from a year ago in July to reach 552.3 billion kilowatt hours.
While almost all thermal coal miners were hit by the previous price decline, and most shut or sold assets, those left with the best assets now stand to benefit from the rebound.
And the biggest winners are those with mines in Australia, thanks to the high average quality of its coal.
Whitehaven said it was confident its high quality coal will continue to attract a premium price.
Shares of Anglo American, which is a major thermal coal producer with six mines in Queensland and NSW, have also recovered from record lows earlier this year.
Glencore, the world's biggest thermal coal exporter with huge local operations here, has seen its shares soar from around 70 pence early this year to nearly £2.
