Australia: PCI coal prices spurt 84% amid Ukraine-Russia conflict

Outbreak of the Russia-Ukraine war and further sanctions on Russia by western countries drastically impacted PCI coal supply and pricing.

The country had exported 32 mnt of coking coal and PCI in 2021, up by 26% y-o-y. India's PCI imports from Moscow stood at 2.65 mnt in 2021, which comprised 21% of the total PCI imports.

Absence of Russian supplies caused extreme panic among European buyers forcing fanatic bidding for Australian PCI coal to fill up the supply gaps. European Union's (EU's) share in Russia's PCI exports stands at around 20%.

The price of Australian low-volatile PCI coal rose by more than $300/t since the outbreak of the Russia-Ukraine war on 24 Feb'22 and are currently assessed at $655/t FOB basis.

Prior to the Russia-Ukraine war, the monthly average price gap between Australian premium coking coal and PCI in Jan'22 was around $132/t. However, this gap between the two kinds of coal has narrowed down and both are being assessed almost at the same levels, indicating surged demand for PCI coal. PCI is significant as it can replace as much as around 40% of met coke needed for hot metal production.

"PCI provides an added advantage of improved combustibility, char reactivity, furnace permeability and burden flow properties over coke. The shortage of coking coal and PCI from Russia has made European mills source the same from Australia," said a market participant based in Singapore.

Australia's supply constraints continue

On supply side, persistent rainfall since the last three weeks has severely affected port operations, resulting in a significant decline in coal stocks at the port and thereby pushing up coal prices.

With respect to coking coal, Australia's premium HCC coking coal prices rose by $106/t w-o-w to $666/t.

In a few deals heard in the current week, a cargo of 60,000 t of hard coking coal (HCC Peak Downs Region) was sold by Australian mining major BHP at $650/t FOB for 16-25 Apr'22 laycan. Around 40,000 t of Australian PCI coal from the South Walker mine was sold at an all-time high price of $645/t FOB Haypoint,

While bookings are made by European mills, Asian buyers are heard to be moving to the sidelines and waiting for some correction before making any major bookings for Austrlian-origin coal.

US also eyes on European market amid shortage

The export demand for US coking and PCI coal has also turned strong in Europe amid concerns of losing Russian supplies, causing the US offers to gain support. US low Vol HCC went up 47% since the outbreak of the war, on 12 March to $530/t FOB.

Outlook

CoalMint believes that in the near-term, any downward correction in Australian and US coking coal and PCI prices seems unlikely amid the global political uncertainty. The prices would see a downtrend only when the war ends between the two countries and supplies improve in Australia with the end of the rainy season in April. However, it is unlikely that prices would touch pre-pandemic levels anytime soon.