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Coal Contracts Could Surge 300%

Coking coal, the coal used in steel manufacturing, has been receiving massive demand from China’s smelters. The spot rice at ports has exploded. One of the characteristics of the coal industry is that trade is usually settled through contracts. Coal miners are right in the middle of negotiating season. The high spot price is translating to higher contract prices.

BHP Billiton (ASX:BHP) announced that its coking coal contract price with steelmaker ArcelorMittal had increased 220% yesterday. Some reports say other contracts could re-adjust to as high as triple their current incarnations. That would mean coal prices as high as US$300 per tonne.

Interestingly, few Australian coal producers have actually doubled in price this year (you’ll note Felix Resources (ASX:FLX) is an exception), let alone tripled. Almost all have added value, but may not be fully priced in. You might like to check out the coal party. It’s a wild scene these days.

Those eastern bottlenecks at coal ports haven’t eased. Our humble suggestion is that the Australian government subsidise some sort of catapault initiative to transport our natural resources to China. It’ll be a boon for the ailing catapault industry.

In the meantime: BHP, LOOK OUT! CHINA’S TRYING TO BUY YOU WHILE YOU’RE NOT LOOKING!!!