China is not importing metallurgical coal at the rate it was in mid-2009, but other steel producing nations are back on the path to pre-global financial crisis output while infrastructure bottlenecks threaten supply.

“Given the strong demand fundamentals for the seaborne market, there is no doubt the supply chain for coking coal is under pressure to deliver growth,” Macquarie analysts said in a commodities report.

“The capacity of the market to do so is limited, with the short-term focus firmly on Australia and the US to push more material through the ports.

“We believe that an extra 12 million tonnes of Australian and 10 million tonnes of US material can be realised, however the logistics chain will be extremely tight under this situation and subject to disruption from unforeseen events.

“Furthermore, prices will have to sustain a level that attracts this swing supply – for the US, we estimate equivalent free-on-board prices of $US140 per tonne for hard coking coal are required.”

The analysts cited a $180/t FOB spot deal in mid-December as the last solid data point for prices but said offer levels were in a $190-200/t range.

However, the recent cold snap in China that is causing power shortages also forces the major coking coal importing nation to divert its rail network capacity to freight thermal coal.

“If sustained, this would both bolster the Chinese domestic price and force more

Chinese mills to seek imported material,” Macquarie said.

“It is interesting to note that the situation looks similar to that of late 2007, early 2008, when the Chinese domestic price doubled in three months after thermal coal was again given railway precedent, followed by international spot prices surging to almost $400 per tonne after the Queensland floods.

“This time around, the domestic price is much closer to the international price, meaning the potential for import arbitrage to open is enhanced.”

The analysts noted that coke supplies in steel producing nations also needed to be restocked as steel mills had worked through their stockpiles in recent months.

But low steelmaking profit margins are placing a roof on premium coking coal price expectations, with Macquarie forecasting $180/t for the next annual benchmark starting in April, 40% up from last year’s benchmark.