Coal contract prices hit their highest level in almost six years

Contract prices for coking coal have surged to their highest levels since 2011.

Coking coal is a crucial ingredient in the steel making process but prices for the December 2016 quarter were relatively low at $US200 per tonne.

Yet figures for this year's March quarter have been locked in at $US285, a jump research analyst Gavin Wendt said, was still being driven by Chinese buyers.

"We have seen tremendous demand strength out of China, much more significant really than the market had anticipated, certainly through the later price of 2016," he said.

"There was a feeling that we would start to see Chinese demand, economic growth and Chinese activity start to tail off a little bit."

Mr. Wendt attributed the continuation of such strong demand from the country to a range of issues, but outlined a drop in domestic Chinese production as the primary reason.

"Chinese authorities have tried to cut back on domes-tic coking coal production," he said.

"When you have a situation where China's steel production is still robust but there is less domestic coal being produced, the gap obviously has to be filled by imported coal."

Spot coking coal prices fall Meanwhile, spot prices are almost $100 less than those of the contracts.
In the second half of 2016, spot prices for coking coal prices more than tripled to $US300 per tonne, but have since fallen back to about $US180.

However, Mr. Wendt suggested those numbers could climb during future negotiations between industry stakeholders. He believed spot prices had fallen due to discounted products as mining companies locked in new buyers.

"That will probably adjust itself when producers sit down with steel mills to talk about march quarter pricing." The year ahead for coal Mr. Wendt was optimistic about coal production throughout 2017, and believed prices would remain strong for the first six months.

"I think we'll start the year on a very positive note and I think we'll probably see very strong prices during the first half of 2017," he said. "As for the second half... a lot of it depends on the overall uncertainty on the international scale, [particularly] what happens in the United States”, he added.

"There is certainly talk around there of significant expansion projects and industrialisation and infrastructure spending ... how that is going to be implemented remains to be seen."

(Source – Mining.com, 19-January-2017)