Australian coking coal prices may rise up to $350/t in Q4CY'22 - Sources

*Restocking demand, thermal coal push triggering price recovery

*FOB Australia and CFR China differential narrows

*Weather alert stokes supply concerns, to keep prices supported

Morning Brief: Australian coking coal prices have recovered around $80/tonne (t) in a short span of about three weeks and the price band in Q4CY'22 is likely to remain within $300-330/t FOB Australia, with some sources suggesting that it could go as high as $350/t FOB, as per latest updates with CoalMint.

However, the anticipated surge in prices has got very little to do with resurgence in demand. Market watchers said that at a fundamental level there has been no dramatic rise in steel demand. Nonetheless, the push from high global energy prices and the spurt in thermal coal prices seem to be supporting coking coal prices.

Global dynamics

"Due to the energy crisis and high thermal coal prices the coking coal market is likely to go up. Given the current spot supply in the market and the slight revival in steel demand, it seems that the market is set to go higher," an Indian steel mill source told CoalMint.

Restocking activity, mainly by traders, in expectation of a revival in steel demand has provided support to prices of late. After falling for almost two months and touching the one-year low point of $190/t FOB Australia in the first week of August, coking coal prices have risen by nearly 40% to $270/t FOB Australia.

Sentiments started changing in the second week of August as Europe's complete ban on Russian coal imports came into effect from 10 August. The EU sources 55-60% of its coking coal requirement from Russia and now Australian and US coking coal will make their way into the continent, thereby supporting prices.

In fact, traders have started taking positions for Australian coal in anticipation that demand may pick up as steel market activity is expected to improve in Europe after the summer break ends in August.

Perspective of Indian buyers

As far as Indian importers of coking coal are concerned there has been no major change in the demand scenario. But there has been news of steel companies buying at high rates which has certainly impacted the only index which is widely followed, a source said.

"Demand has not fluctuated much since the steel export duty fiasco but has been generally steady. No major producer has cut production sharply and neither has any company resumed production in a major way. But the way the coking coal index is structured more importance is given to sentiments when they are on the ascendant than when they climb down," a senior procurement manager at a leading Indian steel mill told CoalMint.

The FOB Australia and CFR China price differential has narrowed. They are closely tracking each other following a lot of correction in the CFR China index. However, sentiments in the China market remain mixed and mixed signals are emanating from China.

The property and mortgage loan crisis is a big dampener when it comes to steel demand and so are the heatwaves and power rationing in some provinces. At the same time, there is an anticipation that the government will infuse funds to prop up the real estate sector and steel demand.

"However, with stable domestic supplies, recovery in tonnages from Mongolia after the easing of COVID-19 protocols and constrained steel production, it seems that China remains largely disconnected from the Australian seaborne coking coal market unlike India, which is still greatly dependant on Australian supplies," the mill manager informed.

Supply & price outlook

And with wetter weather in Australia, as predicted, coupled with a La Nina alert, prices could well go higher as supply issues will remain a thorn in the side of coking coal importers. Coking coal production and supplies were hampered in July due to heavy rains that impacted prices amid reduced spot availability in August.

The Australian Bureau of Meteorology has upgraded its La Nina watch for 2022-23 to an alert, increasing the probability of another wet year. This will be the third La Nina weather trend in a row, increasing the chances of above-average rainfall across the already saturated ground.

Therefore, the price outlook for the remainder of 2022 remains upbeat, CoalMint understands.