After the China’s government reined in surplus capacity, Chinese buyers began hoarding coal supplies, causing seaborne thermal coal for the Asian market to rise to its highest in over 10 months and supporting coal-related exchange traded funds.
Year-to-date, the VanEck Vectors Coal ETF (NYSEArca: KOL), which tracks the coal industry, jumped 37.4% and the GreenHaven Coal Fund (NYSEArca: TONS), which is designed to offer investors with exposure to daily changes in the price of coal futures contracts, surged 53.8%.
From a low of $49 per tonne in January, high-grade Australian thermal coal has rallied 20% to over $59 per tonne, reports Neil Hume for the Financial Times.
“The least loved part of the energy complex is looking in better shape than it has for several years,” analysts at Citi in a report.
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Coal has been among the least loved areas of the market after plunging prices and a market shift away from so-called dirty energy sources.
Coal prices have also improved on rebounding crude oil prices, which eased deflationary pressures on the coal industry and supported natural gas, the main competitor to coal across Asia in power generation.
[related_stories]Over the past week, Chinese buyers have begun hoarding cargoes of thermal coal in the spot market ahead of potential action from Beijing to rationalize domestic supplies. The Chinese government recently ordered mines to cut capacity by 16% and operate for 276 days annual, compared to 330 days previously.
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Moreover, the coal market is being bolstered by disrupted shipments from Indonesia and increased demand for high-grade thermal coal out out of South Korea and Taiwan.
“There are so many cuts coming through domestically that China’s consumers will probably need to engage the seaborne [or import]market,” Tom Price, analyst at Morgan Stanley, told the Financial Times.
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VanEck Vectors Coal ETF