Coal con­tract prices to surge as na­tion re­duces ca­pac­ity

China Daily (USA) - - BUSINESS - By BLOOMBERG

Me­tal­lur­gi­cal coal con­tracts are set for the long­est run of gains since quar­terly deals were in­tro­duced in 2010 as China cuts out­put and raises steel pro­duc­tion.

Spot prices for hard cok­ing coal have gained more than 80 per­cent since the start of June to more than $150 a met­ric ton, surg­ing above the thirdquar­ter con­tract price of $92.5. Min­ers and Ja­panese steel­mak­ers have agreed to a sup­ply ac­cord at a slight pre­mium to the spot price the past few quar­ters, ac­cord­ing to UBS Group AG. A deal above $100 for the last three months of the year would be the high­est since the first half of 2015 and the third straight quar­terly gain.

Coal prices are re­bound­ing after five years of de­clines as China seeks to cut as much as 9 per­cent of its pro­duc­tion ca­pac­ity to trim in­dus­trial over­sup­ply and curb pol­lu­tion. De­mand for me­tal­lur­gi­cal coal has been fur­ther boosted by the coun­try’s ris­ing steel out­put.

“Wher­ever the spot price is at the end of Septem­ber, that will have an in­flu­ence on the ul­ti­mate con­tract price,” Daniel Mor­gan, an an­a­lyst with UBS in Syd­ney, said by phone. “There have been sup­ply con­straints in China, while steel pro­duc­tion has been bet­ter than an­tic­i­pated. If you were to ask what has sur­prised the mar­ket the most in the com­mod­ity space the last few months, it’s been the strength of met coal prices.”

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