After years of pain, coal becomes one of the hottest commodities of 2016

Less than a year after the coal industry was declared to be in terminal decline, the fossil fuel has staged its steepest price rally in over half a decade, making it one of the hottest major commodities.

Cargo prices for Australian thermal coal from its Newcastle terminal, seen as the Asian benchmark, have soared over 35 percent since mid-June to more than one-year highs of almost $70 a tonne, pushed by surprise increases in Chinese imports.

“Chinese regulators have assumed the role that markets traditionally play in bringing oversupplied commodities back to balance,” Goldman Sachs said in a note to clients late on Tuesday, reversing a gloomy outlook it issued last September.

“Restrictions on domestic production introduced earlier this year have lifted prices globally and turned coal into one of the best performing commodities so far this year.”

Global mining majors like Glencore and Anglo American, but also regional Asian players like Thailand’s Banpu, are reaping the benefits.

All three have seen their shares rise sharply this year, particularly in recent months after China in April cut mine operating days by 16 percent in a bid to help meet its target of reducing capacity by 250 million tonnes this year.

Banpu, which operates several export mines across Asia-Pacific, said this week that it expects to sell its 2016 coal supplies at an average price of over $50 a tonne, up from a previous target of $47 to $48 per tonne, thanks to the recent rally.

The price recovery is an unexpected boon for miners, who were hit hard by a years-long downturn, and stands in sharp contrast to previous calls by Goldman and the International Energy Agency (IEA), who said last year that coal was in terminal decline.

As a result of China’s surprise move, Goldman said there was now “support (for) global prices for the foreseeable future.”

The bank raised its three, six and 12 month price forecasts to $65/$62/$60 per tonne for Newcastle coal, up as much as 38 percent from its previous outlook.

Coal India Ltd