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Coal mining in Australia.
Coal mining in Australia.

Coal Miners Reaping Benefits of Price Rally

Coal Miners Reaping Benefits of Price Rally

Less than a year after the coal industry was declared to be in terminal decline, the fossil fuel has staged its steepest price rally in over half a decade, making it one of the hottest major commodities.
Cargo prices for Australian thermal coal from its Newcastle terminal, seen as the Asian benchmark, have soared over 35% since mid-June to more than one-year highs of almost $70 a ton, pushed by surprise increases in Chinese imports, Reuters reported.
“Chinese regulators have assumed the role that markets traditionally play in bringing oversupplied commodities back to balance,” Goldman Sachs said in a note to clients late on Tuesday, reversing a gloomy outlook it issued last September.
“Restrictions on domestic production introduced earlier this year have lifted prices globally and turned coal into one of the best performing commodities so far this year.”
Global mining majors like Glencore and Anglo American, but also regional Asian players like Thailand’s Banpu, are reaping the benefits.
All three have seen their shares rise sharply this year, particularly in recent months after China in April cut mine operating days by 16% in a bid to help meet its target of reducing capacity by 250 million tons this year.
Banpu, which operates several export mines across Asia-Pacific, said this week that it expects to sell its 2016 coal supplies at an average price of over $50 a ton, up from a previous target of $47 to $48 per ton, thanks to the recent rally.
Goldman raised its three, six and 12 month price forecasts to $65/$62/$60 per ton for Newcastle coal, up as much as 38% from its previous outlook.
Coal has also been garnering support from Asian industrial powerhouses Japan and South Korea, while demand remains firm in India, Vietnam and the Philippines.
Japan is burning record amounts of the fossil fuel for electricity generation after the 2011 Fukushima disaster shuttered its nuclear sector, while South Korea plans to build 20 new power plants using the cheapest fuel source by 2022.
China’s power consumption has also risen against expectations, jumping 8.2% from a year ago in July to reach 552.3 billion kilowatt hours.
While almost all thermal coal miners were hit by the previous price decline, and most shut or sold assets, those left with the best assets now stand to benefit from the rebound.
The biggest winners are those with mines in Australia, thanks to the high average quality of its coal.

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