Coal rallies to six-year high as heatwave fires up China demand

8th June 2018 By: Bloomberg

HONG KONG – The heat is on in the global coal market.

Prices of Newcastle coal are at the highest level since 2012 after surging 24% since mid-April to $112.05 a metric ton on Thursday as China maintains robust demand during unseasonably hot weather. Despite measures imposed by the top user to cool soaring domestic prices, international miners are on a roll after a five-year downturn that shuttered mines and cost jobs.

China’s power producers have been challenged by extreme weather in 2018, from a cold snap in January to a heatwave in May, draining stockpiles. The nation has boosted coal imports by 8.2% to 121 million tons in the first five months this year even as policy makers imposed restrictions on some shipments. Australian cargoes bound for China jumped to an all-time high in April.

The rally is proving to be a headache for Chinese authorities. The government has put in place a string of measures, including boosting output from efficient mines, to try and rein in domestic prices, with little success so far. Benchmark prices at Qinhuangdao port are trading well above a target of 570 yuan a ton, which officials have reportedly set with a June 10 deadline in mind.

That’s giving producers a reason to rejoice, though, as the 38% rally in Newcastle coal over the past year has helped to boost shares. Australia’s Whitehaven Coal Ltd. has risen to the highest since April 2012, while Glencore in London has climbed about 36% in the last 12 months. It’s not just thermal prices that are strong; the variety used in steel-making has averaged about $211 a ton so far in 2018, and if maintained throughout the remaining months, would be the highest average in at least six years.

With improving coal price comes a flurry of dealmaking. Eight transactions worth $4.4-billion this year have put M&A in the sector on pace for the best year since 2011, according to data tracked by Bloomberg.