Will coking coal prices retreat from current levels in H2 2022?

Coking coal prices have been highly volatile so far this year mainly due to supply constraints in the first three months of the year because of the Russia-Ukraine conflict and sluggish global steel demand especially towards May-end.

Analysing the supply side, Australia - the largest coking coal supplier - saw more-than expected rainfall during January-April 2022 due to La-Nina phenomenon which affected exports from the country. The Russia-Ukraine conflict in the last week of February resulted in panic buying of other-origin coal, pushing up its prices by more than $300/t to $650/t FOB basis in mid-March. Also sanctions on Russia by the western countries opened up opportunities for Australia as major steel producing countries in Asia and Europe sought Australian coal.

In January-April 2022, Australia’s coking coal exports came down by 10% y-o-y to 49 mnt. On the other hand, US coking coal exports remained largely stable at 9.51 mnt in the said period. This was because, post-the Russia-Ukraine crisis, China started procuring more of cheaper Russian coal over US coal. However, inquiries for the latter increased from European market.

Global steel market scenario

With sanctions on Russian coal, demand for Australian coal should have ideally gone up, but this didn’t happen due to sluggish global steel demand this year.

The combined crude steel production volume of the key Asian countries came down by 6% y-o-y in January-April 2022. A major drop in output was seen in China due to the third wave of Covid-19 which started from mid-March 2022, leading to lockdown and suspension of industrial activities.

On the other hand, only India’s steel output went up by 11% in the given period backed by the recovery in industrial activities in the last two years as the Covid situation eased. In case of European Union, crude steel output came down by 4% on y-o-y basis in January-April 2022.

Why did prices fall in May-end?

In early-May, coking coal prices were strong but the situation reversed towards the month-end after India, a key coking coal buyer, announced export duty on steel. This dampened India’s demand for Australian coal, pulling down its prices. In addition, the country started looking for cheaper Russian coking and PCI coal.

Another major factor that weighed on global prices was an expected recovery of downstream demand in China after the easing of lockdown restrictions but this has not happened yet.

In Asia market , biggest supplier of steel, flat steel export prices have fallen by $55-100/t, FoB basis in last two weeks.

HRC(Hot-rolled coil) export prices as on dates mentioned

Price in $/t

Meanwhile, Chinese coke was supplied to Europe and India (around mid-May) at cheaper rates (average of $515-520/t against Australian coking coal price of $455/t FoB basis), because of sluggish domestic demand there, resulting in shrinking of coking coal requirement.

What is expected in H2 2022?

Amid changing trade dynamics, Australian coal demand is expected to remain weak as China will continue to buy Russian coking coal at cheaper rates and even Indian buyers will explore other options. However, this could be compensated by strong demand for Australian coking coal from EU, Japan, and Korea.

Moreover, World Steel Association (WSA) has estimated a marginal 0.4% y-o-y rise in world’s steel output in 2022 at 1,840 mnt.

Thus, CoalMint expects that coking coal prices would remain anywhere in the range between $350-400/t (+/-$50/t) in the second half of the year until any unexpected supply constraints crop up.