Coal prices hit 30-month high as Newcastle cargoes surge $80

SINGAPORE/LONDON: Physical thermal coal prices have jumped to fresh two-and-a-half year highs as stricter rules in China for transporting the world´s most important power generation fuel add to the impact of earlier Chinese caps on coal mining.

Coal prices began to soar after China introduced regulations to rein in rampant overcapacity in April, limiting the number of days that miners can operate.

Prices were given a further boost in late September when China´s Transport Ministry introduced stricter land transport rules, pushing up freight costs.

"The new rules are expected to effectively crack down on freight over-loading by setting up higher standards, imposing stronger penalty and enhancing inspections," Citi said in a note to clients at the end of September.

A trader said coal prices will keep rising until the situation in the Pacific changes, possibly until the end of the first quarter next year. The biggest impact has been on Australian coal, the main price benchmark for the Asia/Pacific region, and a core supplier to China.

Australian prompt Newcastle cargo prices have shot up 12.8 percent since the end of September to $82 per tonne, their highest level since January 2014. Newcastle cargo prices are up 68.4 percent from their multi-year lows last January.

China´s new policies had left the world´s biggest coal consumer "desperately short" of supplies at a time when demand seasonally strengthens ahead of winter, another trader said. Thermal coal imports surged in August, rising 20 percent month-on-month to 20 million tonnes.

But Morgan Stanley said it was possible that domestic Chinese coal supplies would rise sharply in October and November in order to prevent a supply shortfall, and this "would be a short-term bear point for all coal prices".

In a move aimed at boosting local supplies, China last week ordered major mines to raise thermal coal output by another 500,000 tonnes per day. Despite the near-term price downside risk, there are other supportive factors, including firm demand from developed markets like South Korea, and across most emerging markets, as well as output cuts in Indonesia and Australia.

This has also pushed up other physical coal price benchmarks. South African Richards Bay prompt cargo prices are up over 10 percent since the end of September at $73.30 per tonne, their highest level since July 2014, and up 47 percent from their Q1 2016 lows.

In Europe, coal import prices into Amsterdam, Rotterdam or Antwerp (ARA) are up 12.9 percent since the end of September at $71 per tonne, their highest level since December 2014, and up 69 percent from Q1 2016 lows.

In the futures market, API2 2017 coal prices have risen to $65.75 a tonne, their highest level since January 2015. Technical analysis suggests that futures might rise as high as nearly $80 a tonne in the next six months as it has broken a key resistance level of $62.83.