Coal prices up 40%, but demand not the reason

SYDNEY - Coal has been one of the most exciting commodities to watch in recent months, with thermal coal prices rising by a sharp 40% in the past three months alone, says HSBC econbomist Paul Bloxham. Coking coal prices are up almost 130%.

But Bloxham, HSBC Chief Economist, Australia, New Zealand and Global Economies, warns that unlike the last time prices saw this sort of jump (back in 2009/10) “it is not a strong demand story”.

“Instead, it is in response to Chinese policy measures aimed at curbing production and improvingprofitability of the sector,” says Bloxham. “China has cut working days on coal mines to 276 days from a typical 330 days.:

Bloxham describes the sharp price rise as welcome news for coal producers
in Australia and Indonesia, and says it could have a significant impact on boosting
nominal GDP in these economies.

“Some relaxing of the supply constraints by Chinese policymakers in the past week or so could see prices start to level out or fall back a bit,” he says. “But it seems likely that coal prices are past the trough.’ www.hsbc.com.au (ATI).