Global metallurgical coal trade volumes may rise around 7-8% y-o-y in 2023

*Uptick in global hot metal output to keep met coal demand firm

*Imports by China may rise nearly 50% y-o-y on active imports from Mongolia

*India's coking coal demand to inch up on robust steel output growth

Global trade in metallurgical coal is expected to increase by 7-8% y-o-y in 2023, as per CoalMint estimates. Total seaborne exports of met coal, including PCI coal for steelmaking, may rise to 325-330 million tonnes (mnt) from 305 mnt recorded in CY22.

The increase in global met coal consumption will result from a marginal hike in hot metal production led by a likely 2% y-o-y growth in Chinese output. China is expected to account for roughly 67% of global hot metal production which is estimated to reach 1.318 mnt in CY23.

Meanwhile, met coal imports by India may rise 3% y-o-y to about 72 mnt, while imports by Japan and the EU are likely to decline by 9% and 7% respectively. So, higher primary steel production in China, India and the rest of Asia will support global growth in met coal trade in CY23.

On the other hand, imports by the EU and Japan are likely to edge down on subdued steel production outlook weighed down by global inflation and tight monetary policy, weak construction demand, lower manufacturing exports, as well as the gradual expansion of scrap-based steelmaking.

In CY22, China had a share of 22% in global seaborne met coal trade followed by India (20%), Japan (15%) and the EU and South Korea (both 12%). China's share may go up to around 28% in CY23, estimates indicate.

Factors driving trade volumes

*Chinese imports surge: Increase in steel production through the primary route in China is projected to drive met coal imports higher by as much as 47% y-o-y in CY23. In CY22, imports were around 64 mnt, which may rise by nearly 30 mnt y-o-y riding on a 2% growth in hot metal production. China's 9MCY23 crude steel output increased by 2%. Marked improvements in coal logistics post COVID and lower prices have led to higher shipments from Mongolia and Russia, with the two countries accounting for roughly 80% of Chinese imports. On the other hand, imports have Australia have remained subdued post lifting of trade embargo.

*Higher Chinese foundry sector demand: China surpassed Japan as the world's top automobile exporter, with exports reaching an impressive 3.22 million units in 8MCY23, as per CAAM data. Auto exports surged at a remarkable rate of 65% y-o-y, thanks to exponential growth in NEV shipments. The auto sector is heavily reliant on iron castings and products churned out by the foundry sector, which is a major consumer of coke and, therefore, met coal. Hence higher met coal consumption and imports due to predominantly weaker grades of coking coal available in China.

*Marginal rise in Indian imports: India's total met coal demand stays strong on rising steel and hot metal production. However, India's imports of met coal may rise around 3% against hot metal growth of 8% in CY23.

The imports may be lower than expected because of two factors: a) higher met coke imports, as imported coke (particularly from China) is cheaper than coking coal and this is expected to lessen overall coking coal import volumes; and b)increase in domestic production of coking coal by PSU miner CIL and private miners. Even though India depends 80-85% on imports of met coal to meet steelmaking needs the government targets to reduce dependency by raising domestic blend up to 30% by 2030.

Q4CY23 Outlook

Although China's imports of coking coal have increased by over 60% y-o-y in January-September 2023, the bulk of supplies from Mongolia and Russia are supposed to reduce considerably in Q4. This is because of two factors:

*Russian coal seems to have lost its price-competitiveness compared with last year and 4-7% export tariffs imposed by Russia on steel and raw materials, including coal, may affect supplies. Under international sanctions, when suppliers have to reorient, their cargo flows and look for new export routes, the export duty makes shipments to Asian countries via Russia's northwestern and southern ports unprofitable and also creates risks for deliveries via the Far Eastern terminals, especially for shippers that do not have their own port capacities.

*Mongolian coal supplies may fall in Q4 due to sharp decline in custom border clearances and the onset of winter in northern Mongolia. Vehicle clearances drastically drop amid freezing conditions in Mongolia, and this offers an opportunity to US, Canada and Australia to ramp up supplies to China in Q4, although Australia's share in China's total imports in 9MCY23 stands at just 2.3%.