Rising since mid-August 2022, Australian coking coal prices touched $321/t FOB in the first week of November due to supply disruptions in Australia with a La Nina event causing heavy rains in the region. However, sentiments have changed in the last one week, with prices falling by $40/t to $280/t FOB Haypoint, Australia.
The sudden drop in coking coal prices despite heavy rains and supply disruptions can be attributed to sluggish demand globally that has led to oversupply in the market. Demand is so sluggish that there is reselling interest among end-users in the market.
India, the top buyer of Australian coking coal, has moved to the sidelines. While it was being anticipated that Indian mills could make some bookings post Diwali, it didn’t happen as domestic steel demand continued to remain moderate with no significant improvement.
Besides, cheaper availability of Chinese coke made Indian steel mills opt for imports rather than booking costlier coking coal. The price arbitrage between the two at present is assessed at around INR 4,000-5,000/t, CoalMint notes.
Steel demand in Japan, another major buyer, continues to remain weak as demand from the automobile, civil engineering and construction sectors remains low. In fact, a few automakers in Japan have lowered their production plans for the coming quarter amid chip shortage and inflated raw material prices.
Similar is the case with another leading steel manufacturing country, South Korea. POSCO Holdings has already forecast that weak steel demand would persist into the first half of 2023 after a price slump and a production halt at its second-biggest plant. Amid sluggish steel demand, Vietnam’s major steel mill has also reduced its HRC prices by $38/t m-o-m to $555/t FOB for December. Major steel producer, Hoa Phat, is thinking of suspending operations at two of its blast furnaces.
Steel prices in Europe have seen a downward correction of 6% m-o-m due to ongoing supply disruptions and high energy prices.
The World Steel Association (worldsteel) has forecast that steel demand in 2022 will contract by 2.3% to reach 1.8 billion tonnes (bnt), impacting raw material demand too.
La Nina alert triggers overstocking
Forecasts of Australia about to face its fourth la Nina event this winter led to various countries stocking up on coking coal. Australia coking coal export rose by 34% to 6.11 mnt from 1-14 November compared with the same period last month. Shipments to India rose marginally, while shipments to Europe increased by 78% to 0.89 mnt. Sufficient inventory buildup combined by sluggish steel demand has negatively impacted coking coal prices.
Will prices continue to fall?
In the current scenario of overstocking and cheaper availability of Chinese coke, any supporting factor that could propel Australian coking coal prices does not appear in sight. However, factors like very high rainfall, supply disruptions, and positive sentiments in the global steel market due to China relaxing its Covid restrictions may keep prices supported in the near term.
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