Coking coal prices in free fall; will Indian met coke exporters seize the opportunity?

The tables have turned for coking coal prices in the past two months, as after touching highs of more than $600/t FOB Australia in March (after the outbreak of the Russia-Ukraine war), Australian coking coal prices have descended to $245/t FOB levels, as per CoalMint data.

India - a key buyer of Australian coking coal (importing 80% of its requirements from the country) - has moved to the sidelines over the last 40-45 days after the imposition of 15% export duty on steel in the last week of May.

Indian steel mills have either preponed their maintenance schedules or announced production cuts as not only exports but domestic steel demand turned mute since the onset of monsoons and soaring inflationary pressure.

Why Indian coke producers can turn to exports?

One of the key segments of the raw material supply chain that has been badly hit are Indian merchant met coke producers. With domestic demand turning sluggish from pig iron producers, coke producers have been left with no option but to sell met coke at a current loss of INR 7,000-8,000/t compared to the cost of production.

However, the continuous fall in coking coal prices can once again be an opportunity for Indian met coke producers to export at competitive rates compared with China.

India has never been a met coke exporter until 2021 when the country exported 1.26 mn t, especially to Europe, Vietnam and Japan. China's domestic coking coal prices were at all-time highs of $560-570/t during the mid-year amid domestic coal shortage and closure of many cokeries in North China due to environmental concerns.

At that time Indian coke producers took advantage of the situation and exported blast furnace grade met coke at $540-550/t on FOB basis that fetched them better realisations than domestic sales.

However, 2022 started on a not-so-good note for the coking coal market, as prices surged significantly and Indian domestic demand gained momentum until May, forcing coke producers to focus on the domestic market and limit Indian sellers' presence in the export market.

But the decline in coking coal prices and tepid domestic steel demand over the next few months can once again bring back Indian coke sellers into the export market.

Cost comparison

The cost of production of met coke at the current coking coal price of $260/t CFR India (for premium coking coal) will stand at around $440/t ex-plant and around $475/t FOB basis. This is less than current Chinese coke export offers of $490-500/t FOB.

Although arrival of coking coal to India at current price levels will take a month or two, any significant fall in Chinese export coke offers seems limited in the coming months. This is due to higher cost of raw materials there in the absence of cheaper Australian coking coal since the last two years.

India can export met coke especially to the European market, which is already struggling to secure coking coal supplies post sanctions on Russia, its key coal supplier.

On the demand side, although sentiments in the EU steel market looks bearish for H2 2022, to keep their steel plants running mills there will keep looking for cheaper coke from India rather than buying coking coal from Australia (by paying higher freight rates) and then converting it to coke.