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Credit Suisse warns investors not to believe the surging coal price hype

Coal News - Published on Fri, 14 Sep 2018

Image Source: Motley Fool reported that the stubbornly strong price of coal has made our coal miners some of the best performers on the S&P/ASX 200 but Credit Suisse believes some of the gains by the commodity are suspect. Credit Suisse has cast doubt on one of the key sentiment drivers for the sector, the Newcastle spot coal price, which has been resiliently trading above USD 110 a tonne even though the mineral is demonised as antiquated and polluting. They said “The high price may be a function of illiquidity and not demand. About 3,000kt of coal is loaded at Newcastle each week, with two thirds high energy, but the globalCOAL price discovery this year has been based on average trades of 64kt per week. Since late-July trading has shriveled to 40kt per week – or sometimes nil. It’s hard to argue that 1% of the port volumes trickling out in 25kt parcels to an unknown entity provides a representative price.”

It said “Another explanation is that it could be intentional – an expression of the pricing power that major miners are beginning to exercise over the price following consolidation of producers in the Hunter Valley. Major miners could ensure that their own sales avoid globalCOAL to keep visible pricing illiquid, while the price of larger volumes remains unknown, shrouded in confidential deals.”

The broker noted McCloskey’s reports that Glencore won a tender for multiple shiploads of high-energy coal to Korea at US$95 per tonne FOB [free on board]. It concluded that Glencore, the biggest Hunter Valley coal producer, would prefer to win contracts at lower prices than add liquidity to the spot market.

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Posted By : Rabi Wangkhem on Fri, 14 Sep 2018
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