Steel prices and hot metal output seen driving coking coal trends
...
Horizon Insights- Coking coal prices have been fluctuating at high levels, closely aligning with warehouse warrant prices. For the market to move decisively, more clarity from the steel sector is required, particularly in the form of rising steel prices and a bottoming out of molten iron production.
While coal prices have recently dropped sharply due to supply-side changes, it's important to monitor any marginal shifts in coal supply. On the demand side, molten iron production remains low, but a rebound is expected within the next 1-2 weeks. The market has already factored in the resumption of production.
With the Q3 long-term agreement pricing of Mongolian coal set at 1,280 yuan/ton, the most significant phase of short-term decline in coking coal prices appears to be over. Despite coal mining remaining the most profitable segment in the industry chain, any further decline in coking coal prices would require a deeper slump in steel demand and continued reductions in molten iron production. Currently, there are signs of stabilization in the steel market, with some rebar specifications experiencing shortages, though HRC performance remains average. In the short term, coking coal prices seem supported at low levels, with upward movement contingent on rising steel prices and steel mills repairing profits to allow room for raw material price increases. Otherwise, the market may continue to test the unit price of Mongolian coal around 1,390 yuan/ton.
Recent steel price rebounds of 200 yuan/ton have led to improved profitability for steel mills, particularly in the Tangshan region, where further production cuts now seem unlikely. As molten iron production approaches a bottom, this development is positive for raw materials. Although a full resumption of steel production has yet to occur, market anticipation is evident in the current trend of weak steel prices coupled with strong raw material prices. The completion of the Q3 long-term pricing agreement for Mongolian coal marks the end of a smooth decline phase in coking coal prices, with the long-term agreement now serving as a solid support level. Purchasing coking coal at current low prices has become a more favorable strategy. Moving forward, it is crucial to watch steel demand closely; if it drives continued steel price increases, this could create space for raw material prices to rise. Otherwise, in a context of weak steel demand, any upward trend in raw material prices could be short-lived.
This report has been written in accordance with an article exchange agreement between Horizon Insights and BigMint.
