In the past twelve months the price of metallurgical coal has risen from lows of less than US$80 per tonne hit last November up towards a hefty US$218 per tonne this week.
That near tripling in value makes met coal comfortably the best performing commodity of the last 12 months, outstripping the well-publicised run ups in gold and silver by several orders of magnitude.
But it’s taken a movement of this magnitude really to wake the capital markets up again to the potential coal still offers.
To be fair, the causes of the price strength have in some senses been driven by politics rather than economics – Chinese authorities in an effort to curb production and increase safety have placed stricter limits on the amount of days per year coal mines under its jurisdiction are able to operate.
The limit has now dropped down from a previous 330 days per year to a more stringent 276.
But there’s more to it than that.
Until the beginning of this year coal markets had pretty capitulated in the face of long-term bearishness in mining per se and because the environmental narrative had taken full hold.
This runs in a fairly predictable way: coal isn’t clean, international agreements are curtailing its use, and power stations are closing.
All true, up to a point. But not the whole story.
Although coal has gone out of style in the West in a big way, it’s still in vogue in the Middle East, the Far East and in Africa. In many cases in these countries the pressing and urgent need for power of any kind outweighs the longer-term environmental impact.
If they are asked for, two arguments are deployed: first is that the West does most of the polluting, and it should put its own house in order first. Second is that there’s more than one type of coal: some types are cleaner than others and there are many ways of mitigating what environmental damage they do do.
So demand from certain parts of the world is likely to hold up pretty consistently, and even grow if certain proposed power stations get the go-ahead, while the burgeoning Chinese steel industry continues to suck in met coal. With that dynamic in place, any supply shock is likely to be felt pretty acutely.
The current run on prices was accelerated by flooding in the Chinese Shanxi district, in much the same way that the previous met coal peak of US$335 per tonne was hit when floods swept across Queensland.
But the Chinese closures and time constraints could have a longer-term impact. Alright, the Chinese government - not renowned for the transparency of its decision-making process – could reverse its stance and set the market back to where it was a year ago almost at a stroke. That possibility makes taking a long-term view on coal somewhat risky.
But on the other hand, television footage of thick smog in Beijing, of pedestrians wearing face masks as a matter of course, and widely publicised factory closures on important political dates and occasions, does make for a certain pressure for the current policies to continue.
All of which has given renewed vigour to companies with exposure to coal, like Prairie Mining (LON:PDZ), Bisichi Mining (LON:BISI), Kibo Mining (LON:KIBO), Anglo Pacific Group (LON:APF), Oracle Coalfields (LON:ORCP), Coal of Africa (LON:CZA) and Edenville Energy (LON:EDL).
Prairie is at a 12-month high, but the share prices of others like Bisichi and Coal of Africa have yet really to respond to this new dynamic.
Indeed, in its last significant communication to market, reviewing the six months to June, Bisichi was still talking more in terms of historical price weakness than of any ongoing price strength.
Kibo on the other hand, has been very active of late, working up both its coal and its gold in Tanzania and making a good job of telling the market what it’s doing. Its shares have just come off from a 5 year high.
So, clearly this is a stockpickers’ market, and to be fair, the range of quality and opportunity across the junior coal sector is very varied. But now’s the time to be digging out those hidden gems.