Prices of coal have surged over the past couple months, in what may be a sign that supply-side reforms are starting to work in China, with prices likely to continue getting support from the onset of the La Nina weather phenomenon later this year.
Benchmark thermal coal prices at the Australian port of Newcastle have gained about 30 percent year-to-date to about $67 a ton.
The rally came on the back of production curbs in China, as the government ordered a 500-million-ton of coal production cut in three to five years.
The output cut however, was behind schedule with just 95 million tons cut by end-July — about 38 percent of this year's 250 million ton targeted cut, China's National Development and Reform Commission said Thursday.
But nature may step in to help coal as the likely onset of the La Nina weather phenomenon will bring heavy rain to Australia and Indonesia, disrupting commodity production. Both countries are large coal producers.
The weather event was likely to take place from the fourth quarter of this year to the first quarter of next year, said Fitch Group's BMI Research in a report.