Coking coal prices falling is not because of pollution, it is...

Coking coal prices falling is not because of pollution, it is because China's steel production has peaked and its fixed asset investment (FAI) is slowing significantly (not withstanding the massive FAI led stimulus in 1Q16, which is already fading).

Over the past few years China has also managed to ramp up domestic coking coal supply and marginal costs have fallen quite a bit.

So, falling demand, increasing supply and falling marginal cost -> bad for coking coal prices.

China's FAI growth will almost certainly continue to slow and steel production with it.

China has a massive real estate bubble and real estate is highly steel intensive, representing c.30-40% of total demand.  This will blow up at some point.  Manufacturing FAI is also c.20% and has slowed significantly given the excess capacity.  Infrastructure investment is probably okay for now, but won't be enough to keep steel demand growing.

Also, China is quite focused on supply side reform currently, with steel being a key segment where the leadership wants to close down excess capacity.  This might be good for steel prices (my guess is it won't be!!) but it is definitely not going to help steel demand.  

The current seaborne coking coal price is $84 versus $45-55 from 1995-2005 i.e. pre boom.  There might be some cost inflation, but over the very long term commodity prices have gone down in real terms (likely due to better extraction methods).

Coking coal and steel will likely have their day again at some point in the future, but commodity cycles tend to be very very long, so I wouldn't be holding my breath.

Who knows what that means for BRL given the share price is so depressed.  But I really think a lot of companies won't survive this downturn.  

Plus - per my last post - 'It is a pity the stock can't rally even after the Chinese injected US$1tr of credit into their economy in Q1 and undertook a major fixed asset led stimulus plus there was an 80% increase in Chinese domestic coking coal prices in from Dec 15-Apr 16.'

I have no idea where prices are going, but if you want to punt a commodity, it seems gold is the one that fits the current macro i.e. the only thing governments can do is continue to debase their currencies and financial repression is the only way (other than a depression) to get out of the current mess.

Elliott is one of the smartest hedge funds in the world - this is Singer's thesis on gold - http://www.zerohedge.com/news/2016-...y-just-starting-jpm-sees-new-gold-bull-market

But don't blame me if it is wrong, because I have no idea where it is going!!!