Stronger for Longer

The Australian Mining Review - - NEWS: COMMODITY FOCUS: COAL - Reuben Adams

GLOBAL ther­mal and met­al­lur­gi­cal coal prices are spik­ing for the third time in the past 12 months due to sup­ply tight­ness in the Chi­nese mar­ket, ac­cord­ing to Citi an­a­lysts.

With on­go­ing safety inspections and other Gov­ern­ment pol­icy in­ter­ven­tions, China’s spot do­mes­tic ther­mal coal sup­ply may re­main tight in the com­ing months.

The im­pacts all along the Aus­tralian sup­ply chain have been over­whelm­ingly pos­i­tive.

For ex­am­ple, coal ex­ports from north­ern Queens­land surged in Au­gust to a multi-year high of 13.44 mil­lion tonnes (mt), the high­est monthly to­tal since Jan­uary 2014.

Dal­rym­ple Bay Coal ter­mi­nal (DBCT) ex­ported 6.95mt in Au­gust, which brought DBCT’s an­nu­alised ex­ports to 81.81 mil­lion tonnes per an­num (mtpa); just short of its 85mtpa name­plate ca­pac­ity.

At 53.56mtpa, the neigh­bour­ing Hay Point Coal Ter­mi­nal (HPCT) came even Emerg­ing in 2016 from some of the most dif­fi­cult in­dus­try con­di­tions in years, coal prices have sta­bilised as sup­ply side tight­ness com­bined with in­ter­na­tional de­mand growth have an­a­lysts up­grad­ing their price fore­casts once again. closer to hit­ting ca­pac­ity.

Mean­while, met­al­lur­gi­cal coal ex­ports to China and Tai­wan from Gladstone Port in Cen­tral QLD surged a re­spec­tive 73 per cent and 191 per cent year-on-year in Au­gust.

In a Septem­ber note, Citi said a com­bi­na­tion of “ro­bust de­mand, sup­ply con­straints and re­stock­ing” would act to keep ex­port prices higher for longer.

A coal mine ac­ci­dent in the Shanxi Province which killed four prompted the Chi­nese Gov­ern­ment to an­nounce a new round of safety inspections in late Au­gust.

The ef­fect of these safety inspections on do­mes­tic sup­ply would last through the sec­ond half of the year, Citi an­a­lysts said.

On the de­mand side, China’s elec­tric­ity gen­er­a­tion has grown 6.8 per cent year-on-year. Poli­cies to keep power plants well-stocked could cre­ate tight­ness in the phys­i­cal mar­ket and pro­vide an on­go­ing boost to mar­ket sen­ti­ment.

And yet the coun­try’s opaque – and seem­ingly coun­ter­in­tu­itive – im­port poli­cies are cause for con­cern to Aus­tralian its 55mtpa name­plate

pro­duc­ers.

There are un­of­fi­cial re­ports that China has re­stricted coal im­ports to force lo­cal power sta­tions into us­ing more do­mes­tic coal, pro­vid­ing a boost to its lo­cal in­dus­try, ac­cord­ing to The Aus­tralian Fi­nan­cial Re­view.

Trea­surer Scott Mor­ri­son, who had just re­turned from a bi-lat­eral Strate­gic Eco­nomic Di­a­logue (SED) in Beijing, called them “prac­ti­cal is­sues”, but down­played any ma­te­rial im­pacts in an in­ter­view with Sky News.

Still, an­a­lyst con­sen­sus is that coal will shine for a while longer, with Mac­quarie Bank pre­dict­ing prices for met coal to re­main buoy­ant into next year.

“The big­gest dis­cernible change in for­tunes for com­modi­ties has been a lift­ing in in­vestor sen­ti­ment to­wards Chi­nese de­mand, with the strong June macroe­co­nomic prints – in­clud­ing the third-high­est ever loans data – hav­ing pre­sented a more ro­bust pic­ture of ac­tiv­ity for the sec­ond half of 2017,”Maquarie an­a­lysts said in an Au­gust re­search note via Busi­ness In­sider.

In a Septem­ber note, Citi said a com­bi­na­tion of “ro­bust de­mand, sup­ply con­straints and re­stock­ing” would act to keep ex­port prices higher for longer.

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