Glencore gallops higher as Liberum bullish on China's coal policy

Glencore shares topped 200p for the first time in over a year on Thursday as recent sector gains were amplified as broker Liberum relented on its 'sell' rating.

Investor confidence in the mining sector has been lifted in recent weeks thanks to comments from the FTSE 100 giant's chief executive Ivan Glasenberg and his peers about their improved assessment of the Chinese economy and future commodities demand.

Improved prospects for thermal coal prices has led to Liberum analyst Ben Davies upgrading his net present value for Glencore to 230p, his target price to 185p and his rating to 'hold'.

Beijing has begun to adjust its domestic policies to reduce coal consumption in order to cut air pollution and carbon dioxide emissions, while also looking to improve profitability for its key coal, power utilities and steel sectors, but this has an inadvertent beneficial effect for Glencore.

The Chinese government in April announced they will lower cut coal capacity across the sector in 2016 by cutting the statutory number of working days in coal mines to 276 days per year from 330, which Davies said will not only raise coal prices but also make Chinese coal miners less cost competitive.

"The changes in Chinese government policy this year have clearly been effective," said Davies, as even domestic coal producers now prefer to use swing supply at certain price levels rather than see the new 276 working day rule relaxed.

He forecast that, unless future import restrictions are imposed, price arbitrage will keep seaborne thermal coal prices range-bound between $50 and $70 per tonne and increased his long term price forecast to $60/t from the previous $50/t.

As the domestic industry is four times the seaborne coal market "it could feasibly match the falls in both domestic consumption and seaborne demand", Davies said, "even with India peaking".