* Australian thermal coal price curve: tmsnrt.rs/2ebnznn
* China coal futures forward curve: tmsnrt.rs/2ebqQTL
* Top-3 Australian coal price rallies: tmsnrt.rs/2e2XFpc
By Henning Gloystein and Keith Wallis
SINGAPORE, Oct 18 The thermal coal price rally
is now among the commodity's top-3 bull-runs on record,
rivalling the 2011 Fukushima nuclear meltown and Australian
mining flood spike, and the 2008/09 financial boom and bust.
With Australian Newcastle spot cargo prices
up over 90 percent since June and up almost 100 percent this
year at almost $100 per tonne, traders and analysts say a bust
is inevitable but maybe not just yet.
"Of course it's not going to last. Rising prices are
encouraging Chinese miners to raise output and the government,
seeing how much prices have risen, has backed down somewhat and
asked for an increase in production," said Ralph Leszczynski of
shipping brokerage Banchero Costa.
However, many believe prices could keep rising until the end
of the year or possibly into early 2017 as the winter season
fuels demand and miners take time to bring on more production.
The price rally for thermal coal, used to generate
electricity, was triggered by a Chinese government decision to
cap its mining output, aimed at reining in rampant overcapacity,
and which forced its utilities to import more coal.
The intervention cut China's mining output by around 15
percent "and sent consumers - electricity generators and steel
mills - back to global markets to meet the short-fall," said
Gerard Burg, senior economist at National Australia Group.
He does not expect current prices to last "too much longer"
as Chinese authorities urge miners to raise output again to
control spiralling coal prices.
International exporters are also reacting to the higher
prices, with Glencore last week announcing it will hire more
than 200 workers at its Collinsville coal mine in Australia,
which mostly exports thermal coal.
FOR NOW, IT'S RED HOT
Vertical price jumps tend to be followed by sharp downward
corrections, yet many analysts believe the coming downturn will
be more gradual than the rally that preceded it.
"Increasing production comes with a lag as you need to
re-hire workers, do training etc," said Leszczynski.
China and other big importers like South Korea are also
short of supplies ahead of winter, which many forecasters expect
to be colder than the last two.
Traders also pointed to big price rises for metallurgical
coal, which has been hit by outages in Australia. This has also
affected thermal coal since both coals tend to come from the
"There's a perfect storm in coal markets. Metallurgical coal
is red hot, due to outages in Australia and - like in thermal
coal - because of soaring Chinese imports," said a mining
investment advisor in Singapore, who spoke anonymously due to
the price sensitivity of the matter to his clients.
A somewhat gradual price retreat is mirrored in the forward
curve, where Chinese coal futures show a price fall from $85.30
per tonne for November to $71 by April next year, and to $61.15
a tonne in October 2017.
Forward contracts show how much traders are willing to pay
today for a product to be delivered at a later stage.
Utilities using coal to generate electricity are already
preparing accordingly: a source at a South Korean utility said
it was only a matter of time before spot coal hit $100 per
tonne. Only then, he said, would prices taper off.
He was therefore trying to avoid the spot market and instead
"seeking to buy cargoes for next year's third and fourth
Newcastle coal cargo prices for the third quarter of 2017
are currently priced around $73.25 per tonne, $22.75 below
current spot cargo prices.
(Reporting by Henning Gloystein; Additional reporting by Keith
Wallis in SINGAPORE and Jane Chung in SEOUL; Editing by Richard