First three months looking good
Wednesday 21 December 2016
The Central Queensland resources sector outlook for 2017 is one of the strongest in years with contract prices settled in the last week making every operating mine (and some that aren’t) profitable on a cash basis.
While coal prices have eased from the Australian dollar record highs experienced in the last month, contract settlements agreed to last week are up a third on the previous three month period.
A contract price of $US 171 a tonne for semi-soft coking coal and $US 180 a tonne for PCI coal was agreed between local miners and their Asian customers - representing an astonishing 200% improvement since the start of 2016.
For the highest quality coking coals, contract prices for the start of 2017 have been settled at around $US 285 - which when adjusted for the relatively low Australian dollar - means coal prices are better now than they were for much of the “mining construction boom”.
However, despite the overall improvement for all coking and thermal coals, there is a growing gap between the prices of the best coking coals and those below them. In fact, the discount is now between 35% and 40% which is wider than at anytime since 2010.
However, on a less optimistic note, analyst Rosealea Yao, a Beijing-based analyst at Gavekal Dragonomics, says the surge in coal spot prices has encouraged marginal coal operations in China - undermining the goals of the Chinese government whose decision to cut output triggered the price rally.
“The surge in prices was much larger and faster than almost anyone expected, so much so that the government has now reversed course and is trying to push prices back down”, she said.
“But there is little sign that officials have learnt any lessons from the policy-induced price spike, which means there is a real risk that their actions will cause prices to overshoot on the downside in coming months.”
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