Spot hard coking coal has more than doubled this year to trade above $US205 a tonne as a new Chinese government policy reduced the number of annual working days at its mines. Goldman, in a note dated Thursday, raised its 2017 price forecast by 64 per cent to $US135 a tonne and its 2018 estimate by 47 per cent to $US125. That compares to the current third-quarter contract price of $US92.50.
"We update our price forecasts in order to reflect a different environment," analysts Christian Lelong and Callum Bruce wrote in the report. "We see upside risks if current policies remain unchanged going into next year and the resulting shortage overwhelms the ability of producers in Australia and the US to respond."
The rally could add billions of dollars in earnings to the bottom line of struggling mining companies already reeling from years of suppressed prices for commodities like iron ore and copper.
China's output has fallen more than 10 per cent so far this year as President Xi Jinping's government ordered miners to lower output to the equivalent of 276 days of production, down from 330 days. China's imports of coking coal jumped 45 per cent in August to the highest in 13 months.
Still, the bank cautioned that higher prices will lead to a global supply response and China could move to relax their constraints on production days at mines.
The government's top planning agency decided in a meeting on Friday in Beijing to implement a plan to increase production, according to the people, who asked not to be identified as the information isn't public.
"Although low inventories and limited supply should support prices in the short term, higher prices could attract up to 20 million tons per annum of recently idled mining capacity," Goldman said. "The eventual adoption of a more flexible policy that allows Chinese production to partially recover should address any lingering shortages in 2017."
For now though, the big winners are likely to be producers outside of China.
"Higher asset values and a sharp improvement in profitability among global miners may not be the outcome that Chinese regulators had in mind," Goldman said. "The main beneficiaries of higher-than-expected seaborne demand are the US, Australia and Mozambique."
If you want to read this article in Japanese, please see the following link: