Cook starts to cut the mustard

Proactive Investors Australia – Why have investors been selling UK-listed coal miners – even the big boys like Xstrata, Rio and BHP Billiton – as if they were going out of fashion?  

Lack of understanding of the global market for the black stuff is probably the key reason. Gloom and doom has hit the commodity markets in the last three months, culminating in almost catastrophic price falls in some metals over the last 2-3 weeks. Steelmakers are cutting output. Car manufacturers are suffering from slumping sales. Nickel mines are closing and PGM miners are losing money hand over fist as metal prices have been driven down and down and down to ridiculous levels…even gold, that safe haven in times of trouble, is some 30% down from the $1000+ level hit earlier this year.

But coal’s different, surely? Falling steel output does not immediately bring about a slump in the demand for coking coal, and a concomitant drop in price, because most coal producers sell the majority of their product under contract, to a fixed price decided annually by negotiation with their customers. Unlike nickel or platinum or copper, there is virtually no spot market in coal, and thus no opportunity for “investors” – the polite name for the speculative hedge funds who drive today’s metal markets – to manipulate the price for their own profit. The coal producers enjoy fixed prices until at least next March, and will continue to supply contracted tonnages of coal.

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