Why are Coking Coal Prices Heading Northwards?

Coking Coal price movements are interesting to observe, mainly due to the uncertainties and surprises involved. At times, the prices stoop too low, while, at other times, the prices suddenly reach unexpected heights. The latest state-of-affairs in the international Coking Coal market pertain to the latter category--the prices have jumped to remarkable levels after negotiating a U-turn suddenly when the prices were falling continuously due to waning demand.

A slew of factors have recently triggered abrupt upward traversals in Coking Coal prices in Australia. Of late, the spot prices for the Premium HCC have escalated to around USD 202/MT FoB Australia (as on 23Nov'17) after sliding to around USD 179/MT FoB Australia (as in the beginning of Nov'17).

Source: CoalMint Research

The prices had exhibited a falling trend during the Sep-Oct'17 period as demand was losing strength due to the bearish sentiments prevailed in the largest consuming country--China. In that country, the government announced steel production cut during the winter season, spanning mid-Nov'17 to mid-Mar'18, that prompted the steel markers there to curtail imports of the coal.

However, the market atmosphere took a different turn with the onset of Nov'17 when demand started strengthening from the non-Chinese steel producers, and at the same time, port issues and supply constraints emerged, entailing the price trajectory to move upwards, also hinting at further ascents in the days to come.

According to a market assessment by CoalMint Research, the recent price rise in respect to the coal under consideration could be summarized as follows:

SUPPLY SIDE ISSUES

Consumers of the coal have become aggressive in importing the coal with the intent of stocking the inventories well in advance before the supply in Australia to go off during the upcoming holidays. Accordingly, coal miners there will suspend production for three weeks, starting 20 Dec'17 to 8Jan'18, implying no supply during the period. Furthermore, the start of the rainy season in Australia towards the end of Dec'17 also has prompted the buyers to procure fervently to guard themselves against any supply disruption during the rainy days in that country.

Despite actuation of the winter steel production cut in China, consumption of the Premium HCC variant has persisted, accounting for the import demand in Australia, thus contributing to the price rise.

In an another occurrence which has added fuel to the fire, Glencore has stopped production at one of its two Coking Coal mines, situated at its Oaky Creek Complex in Queensland of Australia. Although the company has not issued any official statement in this regard, talks of the mineable coal getting exhausted in the mine were doing the rounds among several market participants.

However, in good news, the Illawara Coking Coal mine, owned by South32, has resumed production after being shut down in late Jun'17 due to high levels of gas concentration in the mine.

PORT DELAYS

Long delays at ports in Australia has become a grave concern for the importers that are causing deliveries of their coal cargoes to fall back by at least 25-30 days. According to the latest information received, there are 88 coal vessels waiting in queues at the port terminals of that country. Out of the port terminals, there are 44 waiting vessels at the DBCT.

Ongoing maintenance activities are causing the port delays as lesser number of vessels could be loaded. In the DBCT, the berth no 2 was down for maintenance since 5Nov'17, and the maintenance will continue at least up to 5Dec'17. The Port Kembla Coal Terminal is now closed for two weeks as a new ship loader is being installed.

FORECAST

Given the tussle between the supply and demand in place, prices of the coal will go further up, to significant levels. Intense imports will continue upto the commencement of holidays in Australia as buyers will try their best to procure the coal before the rainy season beings there. They will apparently try to avoid the higher moisture content in the coal during the rainy season. Typically, Indian steel producers prefer not more than 10-12% moisture content in the coal. Exceeding the moisture content beyond this limit will mean shipments will be halted. Moreover, the rains are likely to flood railway lines and coal mines apart from slumping coal stocks at ports. In the event of which, coal supplies during the rainy season in Australia will be disrupted--something the buyers will tend to avoid.

In a price forecast by taking into account the supply and demand factors, spot prices for the Premium HCC are likely to move up further by at least USD 35-40/MT in Dec'17: to be driven by stronger demand and supply limitations.

MARKET STATISTICS

Source: CoalMint Research