US coking coal prices edge down after month-long bull run

US coking coal export prices have drifted slightly lower in the past two days, as recent trading sentiments weakened on concerns over probable coal import restrictions in China.

Until this week, however, US coking coal prices have been on a gaining spree for four weeks, on account of incremental sales activity, with additional volumes exported to Asian markets, though European steel trade and demand had not improved significantly.

Notably, the spot price for low-volatile hard coking coal (FOB US east coast) hit over 5-month high of $118/t on 5 Oct'20 -- rising 12% from $105/t on 7 Sep'20.

US coking coal demand spurts on potential supply problems in Australia

The increased demand for Atlantic coking coals emerged as Australian suppliers were largely withholding offers in view of climatic uncertainties typically occurring in Australia around this time each year.

The development of a La Nina event in the Pacific Ocean, as declared last month by the Australian Bureau of Meteorology (BoM), signals higher rainfall on the eastern seaboard over the next few months.

BoM also forecasts that an above-average number of tropical cyclones are likely to develop off Australia's coast during the November-April cyclone season, posing a greater threat than usual to the country's coal assets.

US coking coal prices are not expected to be much impacted by China's import curbs

The possibility of the rumored Chinese ban - particularly on Australian thermal and coking coal imports - has aroused widespread international interest and concern among global coal traders. Firstly because, it may decrease demand for seaborne coking coal globally. And secondly, prices can come under pressure amid excess supply resulting from demand loss from the largest importer, China.

In fact, there are already reports that China-bound vessels carrying Australian coals are being diverted to India instead and some Chinese customers have asked to defer purchases.

However, it is difficult for China to replace Australian coking coal as it would destabilize the country's steelmaking industry, especially given China's heavy reliance on both iron ore and coking coal imports from Australia.

Hence, we conclude that, while Australian coking coal prices are likely to be adversely affected in the short term, US coking coal prices should remain well supported with ex-China demand picking up from other major steel producing countries in the Asia-Pacific region, viz. Japan, India and South Korea.

Price Assessments

The latest FOB US East Coast price of low-volatile hard coking coal is assessed at $115.00/t, based on 58% coke strength after reaction (CSR), 8% ash, 0.8% sulfur and 19% volatile matter material.

For Indian buyers, the above price amounts to $143.25/t on CNF India basis, after considering a USEC-India dry bulk freight rate of $28.25/t for delivery from the Port of Hampton Roads by Panamax vessel class.

The US high-volatile type A (HVA) coking coal price is assessed at around $122.00/t FOB USEC, based on 7% ash, 0.85% sulfur and 32% volatile matter.

The US high-volatile type B (HVB) coking coal price is assessed at around $106.00/t FOB USEC, based on 8% ash, 0.95% sulfur and 34% volatile matter.

~

By Aditya Sinha