Spot metallurgical coal topped $US300 a tonne for the first time since flooding in Australia curbed output from the world’s biggest seaborne exporter five years ago.
Hard coking coal rose to $US307.20 a tonne on Tuesday, extending a surge that has seen the price quadruple since the start of June. Miners and Japanese steelmakers agreed to a three-month supply contract at a record $US330 for the second quarter of 2011 after heavy rain and flooding crimped production in Queensland. Chinese demand has driven the price surge this year.
In a bid to check the surge in prices, three Chinese futures markets moved to limit additional increases. The Dalian Commodity Exchange said it will raise minimum margins for coke and coking coal to 11 per cent effective immediately. It will also double non-intraday transaction fees for both commodities from Wednesday.
Dalian coking coal closed 2.8 per cent lower at 1422.50 yuan ($US210) a tonne after rising as much as 5.5 per cent to a record high of 1544 yuan.
Coke, which climbed as much as 6 per cent to its loftiest since February 2013, ended 0.5 per cent firmer at 1965.50 yuan per tonne. Coking coal surged 10 percent on Monday, leading a broad rally in Chinese commodities.
Tuesday’s relatively modest losses in coking coal suggests a shortage of supply of the steelmaking commodity in China may continue to support prices, traders said. “I don’t see any immediate relief to the coal sector,” said a Shanghai-based trader.
Coking coal’s decline curbed gains in steel and iron ore. Dalian iron ore closed up 2 per cent at 519 yuan a tonne, off a session high of 529.50 yuan.
“Mills are making money, they’re able to increase steel prices and sustain those steel prices,” said the Shanghai trader. “They will continue to produce.”
China’s efforts to cut overcapacity in its coal industry have reduced domestic supply and boosted imports of both metallurgical and the variety burned in power stations. While Chinese purchases remained above 20 million tonnes in October for a fifth month, producers from BHP Billiton to Japan’s biggest trading houses predict prices will ease for coking coal.
“The impact on Chinese domestic supply has resulted in significant import demand,” said Daniel Hynes, an analyst at Australia & New Zealand Banking Group. “We could see prices slip about $US150 lower than where they are at the moment, but I don’t think the market will be pushed in that direction in the short term. We’re just not expecting to see supply adjust that quickly.”
Spot hard coking coal advanced $US17.90, or 6.2 per cent, on Tuesday, according to data from The Steel Index. Monday’s rise was the biggest daily gain since the index was started in January 2013. Newcastle thermal coal increased 34 per cent in October, the most since February 2008. Prices closed at $US109.40 on Monday.
Japanese steelmaker Nippon Steel & Sumitomo Metal agreed to pay $US200 a tonne for metallurgical supplies during the fourth quarter, the highest contract price since 2012. Australian miner Whitehaven Coal and consultant Wood Mackenzie predict prices will remain at elevated levels in the short-term.
“Unless China decides to lift its restrictions and flood the market, you would expect prices to remain around these levels in the short to medium term,” Whitehaven chairman Mark Vaile said in an interview on Tuesday. Shares in the Sydney-based company have more than quadrupled this year.