Metallurgical Coal
Can China Come to the Rescue?
January 2020
Significant discounts for imported coal has sparked renewed interest from Chinese buyers leading to a recovery in metallurgical coal prices.

Meanwhile, as the import quota has reset with the new year, buyers confidence in purchasing imports has increased.

December saw a modest rebound in metallurgical coal prices, with the December price for Premium HCC averaging around US$135/t FOB Australia, up almost US$3/t from Octobers price.

However, this recovery has not been replicated in the prices for lower grades of metallurgical coal, which are less favoured by Chinese buyers. This saw standard HCC price fall to US$121/t, down US$2/t, LVPCI price fall to US$85/t, down US$2/t while the semi-soft price fell to US$74/t, down US$4/t.

Following the lower grades in the Pacific market, the spot price at the Atlantic market for low-volatile HCC FOB East Coast US averaged US$128/t in December, a decrease of US$3/t month-on-month. Supply from the region is expected to remain depressed for the early part of 2020, with US production expected to decline further along with expected mine closures and no new metallurgical coal mines in the short-term to fill the void. 

Meanwhile, poor steel production in Europe is not expected to improve in the short term. The December export price for High-Vol A products averaged US$134/t, down US$1/t month-on-month.

Japan's Nippon Steel settled its October-December contract for semi-soft coking coal with an Australian supplier at $98/t FOB Australia. This settlement price represents a decline from $115/t fob Australia for the company's third-quarter contract and is also below the fourth-quarter deal the company recently made with another Australian supplier at $107/t. Nippon Steel and South Korean steel producer Posco similarly settled their fourth-quarter contracts for the Foxleigh PCI grade at $105/t FOB Australia. Nippon Steel used a three-month average of premium hard coking coal prices from the September-November period as guidance in its fourth-quarter PCI and semi-soft contract negotiations.

For the first eleven months of 2019, global steel production increased 2.7%; however, this has not been spread evenly. EU production has declined 4.2%, and driver of greater European growth, Turkey, has fallen 10.4%, Russian production has fallen 0.6%, and South American production is down 8.3%. Growth has been driven by China, which was up 7%, with strong growth also seen in Vietnam, Iran and the US, up 46.3%, 5.3% and 1.9%, respectively.