Australia: Coking coal prices surge amid escalating Russia-Ukraine tension

Coking coal market sentiments changed within a span of a day as the Russia-Ukraine conflict escalated. The scenario caused a surge in prices of the fuel, especially from Australia, amid the possibility of sanctions on Russia by western countries.

On 22 Feb'22, the Australian premium HCC FOB price was at $447/t, up by $7/t d-o-d and up $4 w-o-w.

On the contrary, US high-vol A HCC coking coal prices have been assessed at $375/t, a fall of $15/t from last week while on a d-o-d basis the same has remained unchanged.

Reliance on Australian coking coal increases

Russian coking coal exports to countries like South Korea, Japan, and Ukraine stood at around 14 mnt in 2021 (about 45% of the country's total exports). Now, with chances of sanctions on Russia, these countries would have to switch to Australian coking coal. Imports from USA are a costlier option for these countries because of comparatively higher freight rates.

On the supply side also, there is a limited number of spot cargoes available for Australian coking coal because of production cuts in key mining areas of Queensland, as there are Covid-related labour restrictions and more than average rainfall, factors which are pushing up the country's coking coal prices.

Russia-Ukraine crisis impact on US coal

The impact of the Russia-Ukraine crisis on US-origin coking coal has been limited so far because this coal is mainly exported to China, Canada and Brazil and the buying interest from China has quite been limited since the past few weeks due to steel output curbs and sufficient coking coal stock with the coke producers.

With sanctions being announced by the European Union (EU) on Russia yesterday, the demand for US-origin coking coal would go up from these countries. However, the same would still be lesser compared to the demand from China. However, US prices are likely to rise only when, along with EU sanctions, Chinese return to the market to buy this coal.

What's happening in China?

Chinese steel mills are resuming production post-winter Olympics and coke demand would rise in the coming days. However, at present, there is sufficient coke inventory with Chinese steel mills, and the demand for US coking coal will gain traction only when imported coking coal is cheaper against domestic.

At present, domestic coking coal in China is cheaper by $25-30/t against imported US coal.

Outlook

Global coking coal prices are expected to remain elevated or may even go up if the tension between Ukraine and Russia escalates further. A respite can come once the issue is resolved between the two countries locked in conflict.