Biggest commodity surprise of 2016 is a windfall for miners – by Jesse Riseborough and Thomas Biesheuvel (Globe and Mail/Bloomberg – September 9, 2016)

The surprise surge in coal prices should provide an unexpected profit boost for the world’s biggest mining companies as they navigate a commodity downturn that sapped earnings.

Gains for coking coal, used with iron ore to make steel, accelerated in recent weeks and benchmark prices from top producer Australia jumped 9.5 per cent on Thursday, the most since at least 2013. At current prices, that would add almost $5-billion (U.S.) to BHP Billiton Ltd.’s underlying earnings before interest, tax, depreciation and amortization in the year ending June 30, according to Liberum Capital Ltd.

Coal has more than doubled this year as China’s production curbs increased its reliance on supplies from other nations. The rally — which Morgan Stanley called a “complete surprise” — is a bright spot for miners still suffering from a plunge in commodities over the past five years. It will also help compensate for a worsening outlook for iron ore, BHP’s main earner, with the firm and a raft of banks expecting prices to retreat by year-end.

“Nobody saw this coming,” Richard Knights, a mining analyst at Liberum Capital Ltd. in London, said by phone. “It’s caught the whole market by surprise. If coal prices stay where they are, thermal and coking, there are huge earnings upgrades to come through in the sector.”

Australian premium hard coking coal reached $173.40 a ton today, the highest in Bloomberg data going back to 2013. The majority of sales are based on quarterly contracts, which were set about 88 per cent below the current spot price.

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