Here’s a chart courtesy of Andy Lees of UBS, overlaying Chinese coal prices with the Australian ones.
A huge gap has opened up since 2008, when commodity prices rose to dizzying heights and then collapsed.
(the Chinese-Australian gap in absolute terms)
(…and in percentage terms)
Only very briefly toward the end of 2008 did this gap close as Chinese bottlenecks were worked through. Since then, it has widened to near record levels.
Andy believes the steadiness of the gap shows a “genuine tightening in supply despite investment rather than just a temporary bottleneck as the [initial] spike would have implied. He says that the Chinese imported a record net 17.9 million tons of coal in September, up 33% year-on-year. Huge!
The Ministry of Finance is pumping money like mad into the weakened Chinese financial sector, over 1 trillion yuan, in order to shore it up from the souring of loans from all of the malinvestment over the past few years. If the Chinese succeeded in engineering a soft landing, Andy believes the record premium for Chinese coal would disappear as Australian coal prices started to play catch-up.