- Signals of de-escalation in Middle East keep market cautious
- Oversupply risk emerges as production outpaces demand growth
Mysteel Global: Sentiment in China’s coking coal market is expected to cool this month after the strong boost that prices received during March from the escalating Middle East tensions, Mysteel’s latest monthly report on the commodity suggests. Market players are recalibrating price expectations in line with underlying fundamentals, it observes. Since mid-March, the mood in the domestic coking coal market had strengthened in sync with soaring global oil and liquefied natural gas prices, after Iran had effectively closed the Strait of Hormuz in response to the US and Israeli aggression, as reported.
Starting 6 March, China’s national composite coking coal prices rose steadily, but it was derivatives that had set the market tone last month. On 23 March, the most-traded May coking coal contract on the Dalian Commodity Exchange (DCE) hit its daily limit-up during the daytime trading session, with the contract closing at RMB 1,289.5/tonne (t) ($187.6/t) that day, the highest since early November last year, according to the DCE data.
In the spot market, meanwhile, by 27 March, the price had climbed up by RMB 116.4/t from three weeks earlier to RMB 1,352.1/t, including the 13% VAT, reaching its highest level in over four months, according to Mysteel’s assessment.
Speculative trading had also accelerated amid the positive market expectations, encouraging coke makers and mills to step up replenishment, which in turn shored up coking coal prices, the report notes.
However, this uptrend has snapped in the days since, amid growing hesitancy to purchase among end-users after the persistent climbs in their coking coal costs, while signals of a de-escalation in the Middle East had further cooled market sentiment. On 30 March, US President Donald Trump had said that Washington could end its strike on Iran within two or three weeks.
The report quotes market watchers as becoming increasingly cautious. “Should the boost to sentiment derived from the conflict begin to weaken, fundamentals are expected to shape market movements again,” one said, warning that the supply-demand balance in the coking coal market remains relatively loose.
In March, the robust market conditions had encouraged the 523 coking coal miners under Mysteel’s nationwide survey to lift their production. Over 19-25 March, their raw coal output had climbed 8.3% from early in the month to 1.98 million tonnes (mnt)/day, also 3.7% higher than the year-ago level.
In contrast, demand for coking coal from metallurgical coke producers recovered at a much slower pace, as output among the 230 independent met coke makers that Mysteel monitors had only risen 2% from early March and 0.5% on year, averaging 514,100 t/d over 19-25 March.
“Making assumptions could be risky,” the report suggests. “As the Middle East conflict has yet to conclude, unforeseen developments in the region may also lead to market movements beyond participants’ expectations,” it added.
Note: This article has been written in accordance with a content exchange agreement between Mysteel and BigMint.
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