6 reasons coking coal price will tank www.mining.com

Coking coal prices continued to defy gravity on Friday trading at $270.50 a tonne after 18 straight sessions without a down day. According to data provided by the Steel Index premium Australia hard coking coal prices are up nearly four-fold since hitting multi-year lows around $70 a tonne in November last year.

Coking coal has been generally spared from its output cuts, an oft used excuse used to blame soaring prices
The seaborne coal rally was also spurred by supply issues after Beijing’s decision to limit coal mines' operating days to 276 or fewer a year from 330 before as it seeks to restructure the industry. Chinese government stimulus plans which saw steel production and demand for power pick up only added fuel to the fire. Authorities recently relaxed some of the production curbs, but that has done little to cool down the market.

The Steel Index in its monthly coking coal review notes that according to the Chinese National Bureau of Statistics, domestic coking coal production in China is only down only 1.6% for the first 9 months of year, compared to the same period last year, to about 331 million tonnes.

"This implies that coking coal has been generally spared from its output cuts, an oft used excuse used to blame soaring coking coal prices," says TSI.

Another reason the industry is worrying about a coking coal price bubble is speculation by Chinese investors in derivatives of steel, met coal and iron ore (the so-called ferrous complex). Lacklustre domestic equity markets and few investment opportunities on the mainland have seen the emergence of debt-fuelled retail investment frenzy.

The Financial Times quotes a hedge fund manager in Shanghai as saying "hedge funds looking for fixed returns. They’re not familiar with commodities, so [this] strategy looks good to them. Someone else takes the big risk":

But this form of margin lending, known in Chinese as peizi, mirrors the type of shadow bank-style margin financing that helped fuel the Chinese stock market boom last year. Once the market turned, margin calls amplified losses as investors were forced to liquidate their holdings to repay loans.
China imported 24.3 million tonnes of coal in September, up more than 33% compared to last year according to official customs data. But imports were down 14% month-on-month as rocketing prices prompt traders to adopt a wait and see approach to the overheated market.

The market appears to believe that whilst persistently rising spot prices have shifted the front contract months higher, future prices will adjust to reflect a more stable supply/demand dynamic
Beijing's central planning agency tried to reassure the market this week, calling the rise in coal prices "irrational" and also blamed speculation.

Coal stocks at five major ports in north China's Bohai Rim region have risen nearly 50% from August lows of previous weeks to 15 million tonnes, while inventories at major power plants have increased by more than a third to 65 million tonnes according to the National Development and Reform Commission.

The Q4’16/Q4’17 spread at the end of September was priced in around US$45/t, but had risen to US$92/t by October’s end. The market appears to believe that whilst persistently rising spot prices have shifted the front contract months higher, future prices will adjust to reflect a more stable supply/demand dynamic, with long-run pricing around US$145/tonne.
Finally, quarterly contract negotiations may also point to rationality returning to the market. TSI reports fourth quarter benchmark talks had been a "fraught negotiation process with the first settlement only agreed 10 days into the start of the quarter".

Japanese steel mills and various Australian producers agreed to a price of $200 a tonne for premium coking coal deliveries over the last quarter of the calendar year. While this represents a rise of 116% over the previous quarter, it's a long way away from spot prices.

In 2011 floods in key export region in Queensland saw the coking coal price touch an all-time high $335 a tonne. Steam coal peaked just shy of $140 a tonne in January 2011.

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Battered U.S. coal industry hopes for Trump, prepares for Clinton www.reuters.com

Republican presidential nominee Donald Trump has won over the U.S. coal industry by promising to revive the downtrodden sector and scrap regulations if elected.

But the industry has a Plan B if the New York businessman loses to his more green-minded Democratic rival Hillary Clinton on Tuesday: carbon capture and storage, a technology that captures carbon dioxide from burning coal and injects it underground, where many scientists are optimistic it cannot contribute to global warming.

Coal backers see CCS as a politically feasible solution that could help the next president thread the needle between environmentalists and a once-powerful business that is in desperate need of a lifeline. They have been pushing both major party candidates to embrace it.

Staff at the National Enhanced Oil Recovery Initiative held separate teleconferences with the Clinton and Trump campaigns in August on the merits of a bill that would extend and raise tax breaks for coal and other fossil fuel companies doing CCS in oilfields, from $10 per ton of carbon stored to $35 a ton. NEORI is made up of diverse groups ranging from environmental ogranizations to some of the country's largest coal companies.

Weeks after the teleconference, Clinton announced her support for the bipartisan CCS bill. Nearly 20 of 100 senators, including Clinton's vice presidential running mate Tim Kaine, also back it and expect it to gain momentum.

Trump has not given a position on the bill, but a senior policy adviser to Trump's campaign, Dan Kowalski, said he "supports all sources of American energy. This includes clean coal and research into new coal technologies."

"My sense is Clinton recognizes that, especially in certain parts of the country, coal-based energy and other fossil fuels provide some of the highest-paying jobs in our economy,” said Brad Crabtree, of the Great Plains Institute, a policy group that pushes for the deployment technologies to reduce fossil fuel emissions, and the parent organization of NEORI.

Oil drillers have used CCS since the 1970s, pumping carbon dioxide into aging reservoirs to force out remaining crude. Coal advocates want to expand CCS to coal-fueled power plants. But the business is expensive and needs incentives.

TRUMP'S PLEDGE, CLINTON'S PRAGMATISM

Trump's anti-regulation stance has made him a clear favorite of the industry, because it suggests lower costs and risks for major producers like Arch Coal Inc, Peabody Energy Corp, Cloud Peak Energy Inc and Alpha Natural Resources Inc.

The sector has given about $223,000 in support of Trump, compared with none for Clinton, according to a Reuters analysis of contributions over $200 made by several of the biggest coal companies and their employees.

Coal faces a potentially starker future under Clinton. She has promised to build on Democratic President Barack Obama's disputed Clean Power Plan to curb carbon output and suffered political damage earlier this year when she said that by doing so "we're going to put a lot of coal miners and coal companies out of business."

Those jobs are already quickly evaporating.

The industry now employs only about 65,000 miners across states like West Virginia, Pennsylvania, Kentucky and Wyoming, down from around 91,000 in 2011, according to the most recent statistics from the U.S. Department of Energy. The country's top two biggest coal companies, Arch and Peabody Energy, this year filed for bankruptcy.

Neither Trump scrapping federal regulations nor the expanded use of CCS will likely restore the sector, where production last year dropped to the lowest level since 1986, to its previous heights. Coal <NYM/QL> faces a dual headwind of both a global push for cleaner energy such as wind and solar power, and drilling technology that has made its competitor natural gas abundant - and cheap.

Jeff Holmstead, a Republican lobbyist at Bracewell Law, said if Clinton wins, much of coal's fate in coming years could be determined in the first 30 to 60 days. By then it should be known whether she appoints staunch environmentalists at departments including the Environmental Protection Agency and the Department of the Interior.

But he is confident that Clinton would work with industry on CCS and allow "coal to play a role in the future in the U.S. power sector."

Elizabeth Gore, a Democrat who lobbies with Brownstein, Hyatt, Farber and Schreck for a coal-burning cooperative said coal companies must "find the marginal changes they can make to buy themselves some time, to provide more of a soft landing."

(Reporting by Timothy Gardner; Additional reporting by Grant Smith, Valerie Volcovici and Emily Stephenson; Editing by Richard Valdmanis and Lisa Shumaker)

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