After falling for almost two months and touching the one-year low point of $190/t on FOB basis in first week of August, Australian coking coal prices rose by nearly 40% recently to $270/t FOB Australia.
With the Indian government imposing an export duty on steel in last week of May, Australian coking coal demand and prices plunged as India is the top importer coking coal. Also, demand from Europe took a backseat in the last two months amid sufficient stocks with steel mills there and sluggish demand amid inflationary pressure.
However, sentiments started changing in the second week of August as Europe imposed a complete ban on Russian coal imports from 10 August. The region sources 55-60% of its coking coal requirement from Russia and now Australian and US coking coal will make their way into the EU, thereby supporting prices.
In fact, the traders started taking positions for Australian coal in anticipation that demand may pick up as steel market activity is expected to improve in Europe after the summer break ends in August.
Coking coal demand from India also firmed up in August with the monsoon nearing its end and domestic steel demand anticipated to improve from September onwards. With the festive season approaching and construction activities resuming, Indian steel demand is likely to pick up, benefiting coking coal prices. A few deals for Australian coking coal were also heard concluded by Japanese steel mills.
“After the initial shock following the outbreak of the Russia-Ukraine war, coking coal prices are expected to stablise at $275-300/t FOB levels. Although no massive increase is expected in global steel demand in the last quarter of 2022, coking coal prices would remain stable at these levels in a sellers’ market at least for this year,” said a global importer based in Singapore.
Australia issues La Nina alert for FY’23
On the supply side, Australian coking coal production and supplies were hampered in July due to heavy rains that impacted prices amid reduced spot availability in August.
Interestingly, the Australian Bureau of Meteorology (BoM) has upgraded its La Nina watch for 2022-23 to an alert, increasing the probability of another wet year. This will be the third La Nina weather trend in a row, increasing the chances of above-average rainfall across the already saturated ground and filled water storage in east and north Australia.
Australia’s coal exports were down 8% in the FY’22 (ended on 30 June) compared with FY’20, which was the last year that was not a La Nina. The drop was despite record-high thermal and metallurgical coal prices during 2021-22, which would usually result in increased supplies if mining firms were not struggling with the effects of flooding and waterlogged pits.
This means that supply from Australia may be hampered by heavy rains, providing support to prices in the coming months.
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