US: Coking coal prices fall by over $40/t in one month on weak Chinese, EU demand

US coking coal prices fell by $42/t in first week of December compared to the same period last month as prices for low vol HCC grade coal fell to $252/t on FOB basis. Prices fell amid diminished demand from top buyer, China, followed by slowing down of demand in Europe.

Chinese demand marred by COVID restrictions

China is already dealing with very strict COVID restrictions that have impacted the country's industrial output and demand, subsequently impacting coal requirement. According to CoalMint data, China's supply of coking coal has come down by 6%, while its demand has shrunk by 3% y-o-y in October.

In fact, Chinese steel mills have cut down on their production due to thin profits and losses. Steel mills held 5.27 mnt of coking coal stock in Nov-end, down 4% y-o-y. Amid sluggish demand, China's domestic coking coal prices dropped RMB 166/t ($124/t) m-o-m to RMB 1,804/t ($259/t) in the first week of December.

The Purchasing Managers' Index (PMI) in China's steel sector, a key indicator for the industry, declined by 4.2 to 40.1 in November, down for the second straight month, according to latest data released by the China Steel Logistics Professionals Committee (CSLPC).

Europe's steel demand sluggish

Coking coal demand in Europe also continues to remain sluggish amid inflationary pressure due to high energy costs. Eurofer, the European steel industry association, has forecast steel demand in the EU to drop by 3.5% to 145 mnt in 2022, owing to a deeper-than-expected recession caused by the continued worsening of the EU economy following Russia's invasion of Ukraine and the energy crisis.

In fact, Eurofer has cited that negative demand is expected to continue for at least the first half of 2023, posting a drop of 1.9% y-o-y to 142.4 mnt of steel products.

Australian coking coal prices drop

Australian coking coal (PHCC) prices fell by $68/t m-o-m and are currently assessed at $248/t as on 5 December. The fall in prices came amid Indian steel mills taking a step back with sufficient inventory of coking coal and cheaper Chinese met coke. Even demand from other steel producing nations remain so sluggish that certain Australian coking coal cargoes are heard being offered in the resellers' market at cheaper rates.

The Indian government on 19 November announced removal of export duty on steel and other raw materials. However, given sluggish domestic steel demand and cheaper availability of steel imports in the Indian market, the duty removal failed to show any impact on steel demand, limiting any pick up in coking coal demand.

Outlook

US coking coal prices are expected to remain rangebound, till China loosens its strict COVID restrictions. Also, any uptrend in Australian coking coal prices seems unlikely with overall bearish sentiments in the global steel market, CoalMint notes.