US Met Coke Market Hit by Weak European Steel Demand

The Atlantic seaborne metallurgical coal and met coke markets are facing potentially lower trade activity and currently under pressure from weaker output growth in certain key markets, particularly in Europe.

The recent announcement by the leading steel producer ArcelorMittal to reduce steelmaking capacity from its major blast furnaces has highly affected the demand. The company would plan to cut 3 MnT of crude steel on an annualized basis.

The above-said reduction in steelmaking may be roughly equivalent to around 1.5 MnT annualized of coking coal and PCI, based on industry operating rates.

The earlier notice by ArcelorMittal was said by market participants to have hit European merchant coke demand more than affecting coking coal consumption at coke plants.
Higher relative prices for blast furnace and other metallurgical coke had been incentivizing steel mills to maximize captive coke production with purchased coals.

ArcelorMittal, which runs several coke plants in Europe, with Poland operations traditionally supplying coke also outside the country, said it continued to be affected by weak market demand and high steel import levels in Europe.

Additionally, the recent British insolvency is also bruising sentiments on the US met coal and coke sales. British Steel, which runs two blast furnaces and coke works in Scunthorpe, England, has run out of cash, citing Brexit as the reason for a cut in order demand for steel and raising costs to comply with legislation on emissions.

Overall European steel producers are facing economic pressure from various external sources- rising foreign imports due to ineffective trade protection measures, a downturn in automotive manufacturing market, and increasing iron ore and electricity costs- softening the country's overall steel sector outlook.

In 2018, US steel and coke market participants acted earlier to secure coal. Now, sources commented on ample supplies of US low-vol hard coking coal availability recently, while any changes in planned met coal shipments and sales in response to changing demand and steel conditions may be too early to see.

US steel mills have increased demand for met coal, as higher capacity utilization has increased coke consumption; despite operations at the US Steel Clairton coke works in the first quarter being hit by repairs after a fire.

With higher stockpiles building at the ports and steel mills in the Atlantic region, US coking coal producers are raising concerns that the excess raw material availability may also temper spot seaborne pricing. This may happen especially when US fixed pricing levels for 2019 are compared with higher priced Australian premium coals, where indexes have outperformed the US met coal export indexes.