Coal rises to become one of hottest commodities

Coal rises to become one of hottest commodities

For all the predictions about the death of coal, it's now one of the hottest commodities in the world.

The resurrection may have further to run.

A surge in Chinese imports to compensate for lower domestic production has seen European prices jump to near an 18-month high, while Australia's benchmark is set for the first annual gain since 2010.

At the start of the year, prices languished near decade lows because of waning demand from utilities seeking to curb pollution and amid the International Energy Agency's declaration that the fuel's golden age in China was over.

Now, traders are weighing the chances of extreme weather hitting major producers and China further boosting imports as factors that could push prices even higher.

"It's a commodity that's been on a slippery slide for the past four years and it's making a remarkable recovery," said Erik Stavseth, an analyst at Arctic Securities in Oslo, who's tracked the market for almost a decade. "There's a strong pulse."

What could light up the market further is the occurrence of a La Nina weather pattern. Last time it happened in 2010 and 2011, heavy rains flooded mines in Australia and Indonesia, the world's two largest exporters.

While some meteorologists have toned down their predictions for the weather phenomenon forming and having a lasting impact "another strong forecast" would cause prices to rise further, according to Fitch Group Inc.'s BMI Research.

La Nina systems can last for as long as two years, occurring when the surface of the equatorial Pacific cools, shifting weather patterns across the world.

Named by fishermen in Latin America, La Nina is the "The Girl," which often follows an El Nino, or "The boy."

The Japan Meteorological Agency said Friday a La Nina has already set in and that there's a 70 percent chance that it will continue into the winter.

That's in contrast to the U.S. Weather Service's Climate Prediction Center which on Thursday downgraded the chance of the event happening to 35 to 45 percent, compared with as high as 75 percent in June.

Australia rates the possibility at 50 percent.

The U.S. and Japan have disagreed about the state of the Pacific in the past. In 2014, Japan declared an El Nino had started while the U.S., along with the Australian Bureau of Meteorology, said it hadn't.

While zinc is this year's best performing commodity, climbing more than 41 percent, coal is not far off. Contracts for delivery next quarter to Amsterdam, Rotterdam and Antwerp gained 30 percent this year, while Australian benchmark contracts rose 40 percent.

That compares with the Bloomberg Commodities Index of 24 raw materials, which rose 7.9 percent this year. Coal isn't in the gauge.

Back in February 2011, Australian prices were almost double today's level as the last La Nina caused havoc to production and transport of the fuel from Australia to South Africa.

In an "extreme" La Nina scenario, prices for the next two quarters in Europe may jump as much as 18 and 27 percent, according to Diana Bacila, an analyst at Nena AS, an Oslo-based energy consulting firm.

Source:Sltrib