Last year December I told colleagues that commodity prices were going to rally in 2016. This was when everyone was still really, really bearish. Around March / April people started believing it and mining stocks have a really great run. I'm astounded by the price gains in iron ore however, because that is a dead commodity if ever there were one. Coal prices have also surprised me. With every man and his dog loathing coal, and renewables making great inroads into power generation, one would have thought Ol King Coal was finally dead. And yet China and India are buying the stuff like there's no tomorrow. This last week has seen coal prices move from the mid-60's to around the mid-90's i.e. USD/ton. You will probably see the stock market wake up to this fact in the next day or so. Expect counters such as Glencore and South32 to do quite well in this regard.
But, being the contrarian I am, I am now quite worried. The coal market is easy to squeeze and manipulate. Certain Swiss based trading companies spring to mind. With Hillary most likely to be stepping into the power seat, I can't imagine that US coal demand is going to go back up. That really leaves Europe, India and China as the major buyers, with China the big swing factor. Next year China gets their High Voltage power network properly up and running. This means that their Hydro Power (of which they have loads) can now easily be transported to the big demand centres on the coast and the SE, where the coal plants are. So, with oil prices remaining rational at around $50 and gas and LNG prices also still quite bearish, I can't see coal being supported at these insane prices for too much longer. Having watched this market for over 18 years now, I think this is the final "Hurrah" for the coal industry. In 5 years time it may only be Eskom buying coal from the Guptas. Enjoy the price rally while it lasts....
