Metallurgical coal price spike: Will it last? Report

Insight 14 September 2016

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Report summary

Memories of the Queensland floods of 2010-11 have been rekindled the by the meteoric rise in metallurgical coal prices in August and September. Supply disruption due to Government policy, production mishaps and weather, have occurred in both China and Australia, whilst seasonal demand in China, and unexpected additional demand from India, have compounded the market tightness. Prices have spiked to around US$200/t in recent days. At such high prices the incentives are high for new supply, but production constraints, and reticence from some miners to re-enter the market after years of pain, will keep things tight in 2016.

Introduction
- Coking coal and Iron Ore price trends Dec 2015 to Sept 2016 (index: 1st Dec = 1)
Four reasons behind the massive price rises
- Chinese metallurgical coal supply is critically short
  - Chinese metallurgical coal production 2015 and 2016
- Demand in China and India has spiked
- International suppliers have been unable to provide the additional coal
- Buyer and seller behaviour has been extreme
Will it last?
- HCC 2016 margins at US$200/t
So what does this all mean for prices?