Here’s Another Surprise Reason For The Coal Rally To Continue

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Here’s Another Surprise Reason For The Coal Rally To Continue
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Coal prices have been cooling the last few months — after a spectacular run last year. But news late last week suggests the market is about to see another leg up.

That’s because of a critical and unexpected policy change that came down over the weekend. With the world’s biggest coal-consuming nation shutting down over 150 import points for supply.

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The place is China. Where the government decreed that coal imports will no longer be allowed at smaller ports across the country, according to state newspaper China Securities Times.

The new import ban reportedly affects at least 150 small ports across the country. Which have, up until now, been major points of entry for coal supply.

Many of those small facilities are in fact owned by coastal power plants, which use them to bring in coal supply for generation. With these ports having lower loading fees than first-tier facilities — by up to $1 per tonne of imported coal.

And the ban is happening right now.

Authorities said that coal imports at smaller ports will be stopped as of July 1. And sources contacted by Reuters confirmed that smaller ports have already started turning away coal vessels from docking.

No figures are available on just how much coal supply is affected by this sudden policy shift. But the amounts are certain to be significant — as evidenced by a big jump in coking coal prices, with futures leaping 8% on the day following the announcement of the import ban.

All of this comes as coal supply is already tightening across China — due to policies like the closure of small mines around the country. Which had lifted Chinese thermal coal prices to a record $86 per tonne in the week before the small port ban was announced.

This latest move will only add fuel to that fire. Watch for coal prices to move upward again, and to see how China’s power utilities will replace the lost supply from the shuttered ports.

Here’s to the little guys,

Dave Forest

Article by Pierce Points

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