Just 12 months ago, the price of metallurgical coal was languishing at $80 per tonne. However, in the second week of October 2016, the price has surged to $218 per tonne, bringing cheer to coal mining contractors and companies.
This price increase has made metallurgical coal the best-performing commodity in the last 12 months, above gold and silver.
However, the increase in the price of metallurgical coal does not have anything to do with economics. Rather, the increase has been attributed to politics. Authorities in China have taken measures to reduce production while boosting safety by introducing a stringent limit on the number of days that coal mines in the country can operate.
Previously, coal mines in China could operate for 330 days each calendar year. However, with the new measures that the Chinese Government has adopted, this figure has dropped to 276 days.
Furthermore, several major coal-using nations across the world have signed agreements to reduce their usage of coal as it is not a clean source of fuel. This has adversely affected the demand for coal, causing many coal-fired power stations to start decommissioning.
While developed nations have been reducing their dependence on coal, it is still widely used in countries in the Middle East, Africa and the Far East. In fact, the need for power in many of these nations is so urgent that the long-term effects on the environment are not of great importance at the moment.
It is anticipated that the demand for coal in certain regions will be consistent, and if coal-fired power stations in these countries get approved, this demand will grow significantly.
Furthermore, China’s steel industry is growing. It is believed that this industry will spur the demand for coal in the near future, and any shortfall in supply will cause the price to skyrocket further.