What led to the recovery in Australian coking coal prices?

Australian coking coal prices have been quite volatile in the past few months. After, hitting an all-time high of $650/t in March, Australian coking coal prices came down by 70% in July ($190/t). However, from mid-August it started rising again and averaged $264/t in September and $274/t in the first week of October.

While the global coking coal demand continues to remain sluggish, this price recovery can be attributed to:

• Elevated thermal coal prices
  
  
• Supply issues due to rains
  
  
• Expected demand recovery from India
  
  

Before 2022, coking coal was always costlier than thermal coal. However, the Russia-Ukraine conflict changed the dynamics this year with sanctions being imposed by western countries on Russian fuel (it was the top supplier to Europe). This led to escalation in gas and thermal coal prices.

On the other hand, steel demand took a hit due to inflationary pressures and supply disruptions. The steel export duty imposition by the Indian government negatively impacted coking coal demand and prices too.

This made thermal and coking coal prices move in different directions. Subsequently, the relatively cheaper coking-quality coals were sold to thermal end-users, especially power plants in developed nations. As per market estimates, about 20-22 mnt of semi-soft and PCI coals have been switched to thermal coal so far this year, which were under 10 mnt till last year.

The unexpected rains in Australia this year due to the La-Nina event hampered the country's exports in August, with ports and rail lines getting disrupted thus providing support to its coking coal prices.

India, the top buyer of Australian coking coal, took a backseat from purchasing due to the steel export duty in the third week of May, which severely impacted coking coal demand. This, coupled with the start of the monsoon - which is usually a dull season for domestic steel demand - further led to very limited bookings by Indian steel mills.

However, the country is now coming out of the wet season and few bookings have been made by Indian mills for Australian coking coal in anticipation of demand pick-up. This is also offering some support to prices.

Global steel demand scenario

The global demand for coking coal continues to remain sluggish. European steel mills had shut down their blast furnaces due to high energy prices, putting a downward pressure on coking coal demand. The high stock levels at mills had pressured European flat steel prices to come down 38% since March.

Japan and Korean steel mills also cut down on their production due to weak steel demand globally. Japan's crude steel production fell by 5% in January-August 2022 y-o-y to 60.7 mnt, while South Korea's fell by 3% to 46 mnt during the said period.

China's domestic steel demand this year failed to pick up amid Covid restrictions and its property market crash. China's coking coal demand does not directly impact Australian coking coal prices, but being the largest steel producing country, it impacts the global coking coal market.

Outlook

Due to massive stockpiles and weak demand worldwide, demand from Japan and Europe will likely remain subpar in the upcoming quarter, causing Australian coking coal prices to remain range-bound.