The resurrection of Coal

For all the predictions about the death of coal, it’s now one of the hottest commodities in the world; a surge in Chinese imports to compensate for lower domestic production has seen European prices jump to near an 18-month high, while Australia’s benchmark is set for the first annual gain since 2010.

At the start of the year, prices languished near decade lows because of waning demand from utilities seeking to curb pollution and amid the International Energy Agency’s declaration that the fuel’s golden age in China was over. Now, traders are weighing the chances of extreme weather hitting major producers and China further boosting imports as factors that could push prices even higher.

What could light up the market further is the occurrence of a La Nina weather pattern. Last time it happened in 2010 and 2011, heavy rains flooded mines in Australia and Indonesia, the world’s two largest exporters. While some meteorologists have toned down their predictions for the weather phenomenon forming and having a lasting impact “another strong forecast” would cause prices to rise further, according to Fitch Group Inc.’s BMI Research.

The Japan Meteorological Agency said Friday that a La Nina has already set in and that there’s a 70 percent chance that it will continue into the winter. That’s in contrast to the U.S. Weather Service’s Climate Prediction Center which on Thursday downgraded the chance of the event happening to 35 to 45 percent, compared with as high as 75 percent in June. Australia rates the possibility at 50 percent.

“Coal got a real boost from the increase in Chinese exports and also by the strike in India,” and even without a La Nina, coal has the potential for further gains.

There’s an absence of new supply, which “is good for the market,” and what China does in terms of imports will be “the big factor,” Ivan Glasenberg, CEO of Glencore Plc, said last month on an earnings call.

(Bloomberg)

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