Coking coal bubble to deflate, unlikely to burst – by Clyde Russell (Reuters U.S. – September 13, 2016)

LAUNCESTON, AUSTRALIA – When the price of a commodity rises by 117 percent in a mere 15 weeks, it’s generally a sign that something is amiss in the market, and coking coal’s recent stellar run is no exception to this rule. The spot price of Australian premium hard coking coal has surged from $83.40 a ton on May 31 to $180.90 on Sept. 9.

So far this year, the price of the fuel used mainly to make steel has leapt by 131 percent, making it the best performer among significant commodities. As with any price surge, there are solid reasons for a rally, but the gains have now reached a point where they have entered the realms of silliness.

Before looking at the reasons why coking coal has rallied so strongly, and why the gains will start to reverse, it’s worth noting that there are several prices for the fuel.

In addition to the spot price for free-on-board cargoes from Australia, the world’s biggest exporter of coking coal, there is an Australian contract price and futures traded on the Dalian Commodity Exchange in China.

These haven’t shown nearly as sharp rallies, with contract prices having gained about 12 percent this year to trade around $92 a ton. The contract price is used by most Australian coking coal miners, other than the biggest, the joint venture between BHP Billiton and Japan’s Mitsubishi.

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