A rally that has boosted coal prices 21 percent from their lows last year may have further to go as the coldest U.S. winter in nine years and China's record imports increase demand and drain stockpiles.

Prices will average $59.28 a ton this year, up 17 percent from $50.75 as of Feb. 19 on the New York Mercantile Exchange and 41 percent more than last year's low in April, according to the median of 11 analyst estimates in a Bloomberg News survey.
Stockpiles at utilities swelled last year after a mild summer and the economic recession reduced power demand.

China, the world's biggest coal user, imported 16.4 million metric tons in December, a sixfold increase from a year earlier, customs data show. Record snowfall buried parts of the U.S., the second-biggest coal consumer, including Dallas and the mid- Atlantic states. The cold weather is reducing a surplus and giving producers Patriot Coal Corp., Consol Energy Inc. and Alpha Natural Resources Inc. power to negotiate higher prices.

"We're definitely bullish for a confluence of factors," said Jeremy Sussman, senior coal analyst at Brean Murray Carret & Co., a New York-based boutique investment bank. "We can see the light at the end of the tunnel in the U.S. The weather has definitely had an impact. The international market is front and center."

Eoin Treacy's view Coal prices have lagged the oil price over the last year and remain in a broad base formation, albeit with incrementally higher major reaction lows. Prices paused above $52 last week and a sustained move below $47 would be required to indicate that a lengthier period of base formation extension is unfolding. (Also see Comment of the Day on January 25th)

Both the Market Vectors Coal ETF and the Powershares Global Coal Portfolio are outperforming the coal price and share a pattern similar to a number of oil and oil service companies. They have both just experienced a somewhat larger pullback, but sustained the progressions of rising reaction lows. They found support two-weeks ago in the region of the 200-day moving average and a sustained move below $30 and $25, respectively, would be required to question scope for further higher to lateral ranging over the medium term.

Most global US coal shares are performing in line with the ETFs mentioned above. However, there are a number of Chinese shares worthy of mention. China Shenhua Energy peaked near HK$40 in January and has now pulled back to the 200-day moving average where it appears to be finding support. A sustained move below HK$30 would now be required to indicate anything other than a 'normal' mean reversion and limit scope for further higher to lateral ranging.

Inner Mongolia Yitai Coal has been unwinding its overbought condition since November but broke upwards to a new recovery high today. A sustained move below CNY7 would be required to question the consistency of the overall advance.

Yanzhou Coal is currently in the midst of a mean reversion having paused in the region of the 2008 high. A sustained move below HK$14 would be required to question scope for further upside over the medium term.

Exxaro of South Africa is also worthy of mention. It found support last week near ZAR10,000 and rallied impressively. A sustained move below ZAR9.500 would be required to question scope for further higher to lateral ranging.