Coal has been on a tear of late as Chinese imports have surged to meet increased domestic demand.
Australian New Castle coal futures have jumped from lows of around US$47 per tonne last year to around US$98 per tonne today.
However, the long-term future for coal prices must surely be less bright as the world increasingly turns to cleaner alternatives.
Coal has been on a rollercoaster ride over the past year. Prices shot up in the aftermath of Donald Trump´s victory in November´s US presidential election as investors raised their expectations for global growth.
The new administration´s agenda to boost growth through lower taxes and increased spending was viewed as being bullish for industrial commodities such as coal.
Global steel production is still very much dependent on coal; around 60% of steel output uses so-called coking coal. Coal, as with iron ore, another key ingredient in steel production, tends to move in tandem with economic cycles.
Coal quickly came off its highs, especially as questions were raised over the legislative path of many of Trump´s policies. Newcastle coal futures traded as high as US$114 per tonne around the time of the US election, but had fallen back to around US$74 per tonne by early May.
In recent weeks, however, coal prices have picked up sharply again, reaching around US$98 per tonne.
China is both the world´s biggest producer and consumer of coal, with continued heavy reliance on the fossil fuel to meet its electricity generating needs.
Over the past few months, Chinese imports have surged as the nation has struggled to cope with higher demand. China´s imports rose by around 18% during the first seven months of 2017 versus the year-ago period.
Higher demand from Chinese power stations is a key reason behind the increase given that thermal power generation in the country has leapt by 8% over the same period.
Coupled with this, China´s own coal-producing capacity has been crimped by state measures implemented last year to close down inefficient and illegal mines.
Higher steel production
Robust steel production is undoubtedly a factor in coal´s recent ascent. In July, global steel output reached its second highest monthly level of all time, at 143 million tonnes. Much of the growth came from China, where steel output climbed 10% year-on-year over the month.
However, this is expected to be a transient phenomenon.
Analysts at ING point out that Chinese steel exports are on a downward path and predict steel prices to come under pressure.