Business / Industries

Coal contract prices to surge as nation reduces capacity

(China Daily) Updated: 2016-09-07 07:34

Metallurgical coal contracts are set for the longest run of gains since quarterly deals were introduced in 2010 as China cuts output and raises steel production.

Spot prices for hard coking coal have gained more than 80 percent since the start of June to more than $150 a metric ton, surging above the third-quarter contract price of $92.5. Miners and Japanese steelmakers have agreed to a supply accord at a slight premium to the spot price the past few quarters, according to UBS Group AG. A deal above $100 for the last three months of the year would be the highest since the first half of 2015 and the third straight quarterly gain.

Coal prices are rebounding after five years of declines as China seeks to cut as much as 9 percent of its production capacity to trim industrial oversupply and curb pollution. Demand for metallurgical coal has been further boosted by the country's rising steel output.

"Wherever the spot price is at the end of September, that will have an influence on the ultimate contract price," Daniel Morgan, an analyst with UBS in Sydney, said by phone. "There have been supply constraints in China, while steel production has been better than anticipated. If you were to ask what has surprised the market the most in the commodity space the last few months, it's been the strength of met coal prices."


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