Coal companies are soaring but may be about to hit turbulence

Several ASX-listed coal companies have seen their share prices rocket over the past month or so, as coal prices jump.

The only problem is that the cause of the coal price rise could be about to disappear into thin air.

Coking coal prices have more than doubled since the start of this year from around US$75 a tonne to around US$200 a tonne in the past week.

Coking coal is used in steelmaking along with iron ore and differs from thermal coal which is used primarily as a source of energy.

Company Last Price Market Cap ($m) Month gain YTD gain
Yancoal Australia Ltd (ASX: YAL) $0.24 $238.6 118% 140%
Stanmore Coal Limited (ASX: SMR) $0.59 $131.3 84% 307%
Universal Coal Plc (ASX: UNV) $0.15 $77.2 15% -29%
Whitehaven Coal Ltd (ASX: WHC) $2.49 $2,554.9 31% 256%
South32 Ltd (ASX: S32) $2.31 $12,297.9 13% 116%
Volt Resources Ltd (ASX: VRC) $0.07 $70.6 4% 64%
A-Cap Resources Limited (ASX: ACB) $0.07 $61.0 115% 294%

Source: S&P Global Market Intelligence

The main reason for the price rise was China’s decision to limit its coal mines to producing just 276 days a year – instead of the previous 330 days. A lack of volume thanks to a series of unexpected interruptions appears to be exacerbating the issue as Macquarie analysts have noted.

But the analysts also say that most coking coalminers sell their product using long-term contracts, so very few will be receiving the current high spot prices for their coal. One exception is BHP Billiton Limited (ASX: BHP), who’s coking coal joint venture is the world’s lowest cost producer and dominates the spot trade according to Macquarie.

Benchmark thermal coal prices have also jumped – but a relatively sedate 47% since January 1, again over restrictions placed on Chinese coalminers.

The problem for thermal coal miners is that China’s economic planner has reportedly just signed an agreement with 74 coal miners to allow them to increase production by 500,000 tonnes each as long as the Bohai-Rim Steam-Coal Price Index stay above US$75 a tonne for two weeks. China’s coal output declined by 10% in the first 8 months of the year, compared to 2015 according to China’s National Development and Reform Commission (NDRC) and CaixinOnline.

Foolish takeaway

Given China’s position in the coal sector, coal prices could rapidly descend and take the miners’ share prices with it. Look out below.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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