Coal rally puts the brakes on asset sales in sector

The unprecedented and recent rise in the price of coking coal, which is trading at more than $200 a tonne, is already discouraging acquisitions in the sector as companies that mine the steel-making commodity have suddenly become expensive, Australia-based miner Terracom (ASX:TER) said.

The firm, which recently snapped up Rio Tinto's Blair Athol coal mine in Queensland state for a token A$1, believes there would have been more industry wide deals if prices for the commodity had stayed low longer, Reuters reports.

While experts believe current prices are unsustainable, they do not expect a collapse to the levels of earlier this year.

The last time coal prices breached $200 a tonne was 2011, when floods in Queensland, a key export region, cut off a third of the world's supply from Australia.

The rally has been triggered in part by Beijing’s recent decision to limit coal mines operating days to 276 or fewer a year. In addition, heavy rains in the key mining province of Shanxi earlier this month significantly reduced the number of available roads and damaged other transportation infrastructure, curbing local supplies.

But Canada’s Teck Resources (TSX:TCK.A, TCK.B), the world's second-largest coal exporter, is warning current prices are unsustainable.

Gregory Waller, the company’s vice president for investor relations and strategic analysis, says that while prices are poised to fall, they are likely to stay way higher than earlier this year.

Speaking at a Deutsche Bank conference in Arizona, Waller said Teck expects prices to settle between $100 and $200 a tonne, but noted that despite the positive outlook the company has no plans of restarting mines that had to idle in the past 18 months due to weak prices.

"Nobody is really going to make an investment decision on the basis of six weeks of pricing," Waller was quoted as saying by Reuters.

 

Analysts agree that if high coking coal prices are here to stay, they could add billions of dollars to the bottom lines of the industry’s top producers, which include Teck, BHP Billiton, Anglo American and South 32.

At the same time, prices close to or above $200 a tonne will likely trigger a supply response, particularly from North American miners, which in turn will put downward pressure on coking coal. Experts, however, do not expect a collapse to the levels of earlier this year.