coal has been red hot this year. the energy commodity championed by u.s. president-elect donald trump has been <u+201c>the spectacular turnaround story of 2016,<u+201d> said morgan stanley analyst tom price. why? in april, china introduced new coal-production caps limiting the number of working days for its miners to 276 a year from 330 previously. prices have since rocketed, with coal vastly outperforming other commodity markets. the value of coking coal shipped from australia, the world<u+2019>s top exporter of the steelmaking commodity, has tripled to more than us$300 a metric ton. thermal coal, used to generate electricity, has also jumped. china recently said it would loosen restrictions on coal-production, although that was skewed to thermal coal, designed to ensure enough supplies for winter heating. and <u+201c>there is clear skepticism from market participants that production is increasing [as] there is no data yet to illustrate it,<u+201d> macquarie group analysts wrote in a note. the country<u+2019>s coal output was down more than 10% on-year in the first nine months of 2016. in the u.s., mr. trump<u+2019>s surprise victory is fanning expectations of new investment in fossil fuels, with the next president having promised to revive the country<u+2019>s beleaguered coal regions. but measures to reverse recent industry regulation could increase both supply and demand for coal in the u.s., having a muted impact on the global market. <u+201c>for prices to normalize, the market has to see a chinese supply response,<u+201d> the macquarie analysts said. that<u+2019>s important because china is by far the world<u+2019>s biggest producer of the energy commodity, so even a small fall in its output is meaningful in the global market. as its production has fallen, china<u+2012>also the world<u+2019>s largest consumer of both thermal and coking coal<u+2012>has purchased more from the international market. the problem is that, after a steep, multi-year downturn in world coal markets, in which output was cut and new projects shelved, imports have struggled to fill the gap. <u+201c>admittedly, chinese imports fell back in september, but they remain high, and the most recent shipping data suggest that imports picked up again in october,<u+201d> capital economics economist thomas pugh said. prices have meantime shown little sign of pulling back, with steady gains posted most days in recent times. the last time australian coking coal prices recorded a daily fall in value was at the start of august. chinese speculators have pounced on the market, racing in to bet on a continued rise in prices. many analysts say this should be the peak in prices. they argue high prices will ultimately trigger a rise in supplies. macquarie forecasts coking coal to average us$200 a ton this quarter, before falling back to an average of us$150 a ton next year and us$120 the following year. it projects thermal coal will also fall following an estimated average of roughly us$83 a ton this quarter. write to rhiannon hoyle at rhiannon.hoyle@wsj.com
coal prices on fire - wsj
rhiannon hoyle