From UBS:
Chinese supply cuts saw coal prices unexpectedly surge recently. Initial contracts for hard coking coal prices spiked by 116% q/q in Q4-16 to ~US$200, with more recent spot prices another ~20% higher at ~US$240 (Figure 1). Thermal spot and semi-soft contract prices also rebounded ~50% in the last quarter. Together, coal prices – weighted by Australia’s export share of each type of coal – have more than doubled (with only a very small offset from the recent AUD/USD appreciation). The impact of higher coal prices is largely yet to be evident in the data.
While the monthly trade deficit already halved this year to $2bn in August (Figure 2), most of the coal price spike was after this. With coal exports ~$2.8bn/month (~10% of total exports), the recent >doubling of prices will lift exports ~$3bn/month (Figure 3). Hence, it seems likely the trade deficit will disappear in coming months, & could even be a surplus. That said, given significant foreign ownership of coal companies, a deteriorating net income deficit (as higher profits flow to foreign owners) will partly offset the trade improvement. However, when combined with strong LNG-driven exports also adding ~½%pt y/y to nominal GDP (Figure 4), the current account deficit (CAD) will still narrow sharply towards 2½% of GDP in 2017, around the smallest trend in decades (Figure 5).