Australian coking coal prices fall by 21% in H1CY22, what lies ahead?

Australian coking coal prices have been volatile in the first six months of 2022. The price for premium grade coking coal in beginning of the year stood at $445/t FOB. Prices touched an all-time high levels of $650/t in March amid Russia-Ukraine conflict but then cooled off to settle at $350/t levels in the last week of June.

Supply issues keep prices high in Jan-May

In the first three months of 2022 (January-March), the supply of coking coal was highly affected due to more than expected rainfall in Australia due to La-Nina event. On the top of it, Russia-Ukraine conflict in the last week of February and subsequent sanctions on Russia by western countries increased demand and prices of Australian coal.

Russia was a key coking coal supplier to Europe, fulfilling about 70% of the latter's coal requirement. But with sanctions in place, steel mills in Europe looked out for its alternative, Australian coking coal.

In fact, Japan and Korea, world's top steel producing nations, had also put sanctions on Russia which led to a shift in these countries' demand for Australian coal. Notably, Russia supplies about 25% and 10% of its total exports to Korea and Japan respectively.

What led to price plunge in June?

In the last week of May 2022, Indian government announced its decision to impose an export duty on steel which greatly impacted Australian coking coal demand. It is to be noted that India - world's second largest steel producer - procures 75-80% of its coking coal requirement from Australia.

Along with this, steel demand in Europe had also turned muted amid inflationary pressure, supply chain woes and replenished stocks in the past few months due to panic buying.

China which was under lockdown during April-May this year eased restrictions from June. Hence, it was expected that steel demand would pick up in this month which didn't happen. In fact, sluggish domestic consumption and a slowdown in property construction weighed on market sentiments and also intensified the steel supply glut. Global steel prices corrected by $200/t in last one month amid the bearish sentiments.

Global crude steel output falls

Quantity in mnt

Global crude steel output from January-May 2022 came down by 6.3% y-o-y to 791.8 mnt on inflationary pressure. The highest decline was registered in European region followed by Asia.

Will coking coal prices ease further?

On the supply side, Australia has planned to add additional 8.4 mnt of coking coal capacity in 2022 and 14 mnt by 2023. With better weather conditions in Australia, many mines have reopened while many have started their expansion plans. BCC, a major miner of Australia, has restarted its bluff mine with a capacity of 13.5 mnt, which was shut since December 2020. It is planning to mine 0.6 mnt by 2022 at Broadmeadow east mine. Anglo American's both Moranbah and Grosvenor mines are now fully operational. Sojitz's Gregory mine, with 1 mnt capacity, will restart by June-end this year.

On the demand side, steel demand from India, Europe, and China is expected to remain sluggish due to the onset of monsoon, inflationary pressure and supply chain issues due to resurgence in Covid cases in a few parts of the world.

Along with this, with changed trade dynamics, Russia is likely to increase its supplies to India and China which may put Australian coking coal prices under pressure.

To know more about the key drivers in the coal economy join us at India Coal Outlook Conference. CoalMint will be hosting the India Coal Outlook Conference on 3-4 August 2022 at The Lalit, New Delhi, to discuss the key issues pertaining to domestic coal production and supply, the government's objective of controlling imports and domestic supply gap affecting many industries, the need to increase the purchasing power of Indian steel companies in the volatile global coking coal market as well as issues related to decarbonization of the coal value chain.