Coking Coal
A worker sits on a truck being loaded with coal at a railway coal yard on the outskirts of the western Indian city of Ahmedabad November 25, 2013. Reuters/Amit Dave

Producers of coking coal are enjoying an unexpected windfall with the surge in price of the key ingredient in steel-making process. Prices of metallurgical coal is now more than twice at the start of 2016 at US$190 (A$250) a tonne.

The price jump is across different platforms and even analysts are stumped at the price increase because based on market fundamentals there is not much justification for the coking coal price boost, says Matthew Boyle, analyst of CRU Group. He explains the uptick in demand and supply constraints as like a perfect storm, reports ABC.

Majority of good quality coking coal come mostly from Australian mines such as BHP Billiton, Glencore, Rio Tinto, Peabody and Anglo American, says Boyle. Canada and Russia also produces some metallurgical coal, but US producers have long abandoned the market due to low prices for a long time.

There is some local production in China, however, there are some problems with transporting the coal from mines to ports and steel mills. Boyle adds the higher demand for coking coal is also felt in north Asian steel mills, Indian and European steel mills.

Reuters reports that the 40-percent rally since June pushed metallurgical coal's premium over Europe to more than US$10 (A$13.22). At US$70 (A$92.55) a tonne, Australian coking coal cargoes from its Newcastle terminal – the standard for Asia/Pacific – are at levels last seen a year ago. But in Europe, import prices into Amsterdam, Rotterdam or Antwerp are only US$58 (A$76.68) because of strong competition from cheap natural gas and renewable.

Fitch Ratings, in a note to investors on late Friday, explains, “The strong rebound in key Asian thermal coal reference prices since the beginning of this year is a function of the Chinese government's regulations surrounding supply management.” Macquarie Bank foresees coking coal enjoying a strong run and trading higher than the forecasts of Macquarie Commodities teams for the next two years.

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Source: S&P Global Platts

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