*Zero-carbon narrative to influence coking coal dynamics
*Historical rally in met coal to persist even as ESG concerns surface
*Supply concerns provide long-term support to prices
The global coking coal market has witnessed volatility over the past couple of years and prices are likely to stay at elevated levels, given the rapidly-changing supply-demand dynamics shaped by the radical shifts in the steel industry related to decarbonisation, experts with McKinsey & Company told SteelMint during a session on ‘Impact of coking coal prices on the global steel industry’ at ENGAGE 2.0 held recently.
Steel dynamics
Going forward, decarbonisation will gain momentum, especially in Europe and other parts of the world, supported by the push from regulators, clients and financial markets, which will drive demand for ‘green steel’. Regional imbalances in steel capacity utilisation will be a factor and massive modernisation and reconfiguration of steel capacity is expected, especially in Europe.
Increased scrap utilisation will lead to the decrease in demand for iron ore and met coal, while demand for quality products will increase, the experts pointed out. Trade tensions may erupt over non-synchronised carbon dioxide regulation and ensuring global level playing field, instances being Article 232 in the USA and the Carbon Border Adjustment Mechanism (CBAM) in the EU.
China was driving most of the steel demand in the initial years of this century, which will flatten out in the next 10-15 years and other regions will take over to carry forward the growth in the industry, according to current projections.
Among the major demand drivers in the global steel landscape will be India and other South East Asian Nations. However, the EU and North America will see limited growth to no growth, as per estimates. It is important to understand that most of the demand will be met by increasing pig iron production.
Supply side
Mines deplete, or run out of resources. More volumes need to be incentivised to cater to demand. Even greenfield production will be required. In order to abide by environment social government (ESG) norms, many mines may take a stance out of coal. Insurance companies are underwriting coal projects.
Emissions norms are making it harder to bring new mines into operations, as no investor would be willing to invest in new battery to produce met coke.
As a result, it could be said that additional supplies needed to sustain the market would come under pressure, creating potential risk for undersupply.
In that scenario, elevated prices would be more the norm than the exception.
Quality concerns
Coking coal prices are intrinsically linked with iron ore. The steel industry will look for high-quality raw materials and hence influence the premiums and discounts of these products. Coking coal price dynamics will influence iron ore prices and incentivise decarbonisation efforts.
The recent sharp rise in coking coal prices has been caused by a set of unique events. Persistently high coking coal prices would accelerate the steel industry’s transition to greener alternatives, while also radically altering iron ore price dynamics.
Companies involved in these markets should plan for a possible scenario in which elevated coking coal prices could become the norm rather than the exception.
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