The 12.5% increase over the June quarterly contracts was a good omen for the industry but some slippage could be around the corner.
Macquarie Research recently noted that spot Australian hard coking coal peaked at $245/t free-on-board in mid-April after Cyclone Ului shut down the Hay Point Coal Terminal earlier in the month.
The analysts noted the market fundamentals for metallurgical coal eased through June and July, with spot hard coking coal at a discount of 13% to the current quarterly contract price.
“The big surprise in met coal supply this year has been the flow of material from Mongolia into China,” Macquarie said a fortnight ago.
“June’s Chinese import figure, at 19.4 million tonnes per annum, is over triple the equivalent month in 2009. It should be noted this is raw coal, and will require further processing (and yield loss) in China to make it suitable for use.
“However, to a certain extent, this has displaced some seaborne tonnage into China in recent months, helping to remove the marginal buyers from the met coal market.”
Macquarie expects Mongolian exports to China to remain strong through this quarter, easing for the winter months.
Factoring in growing met coal exports from North America and about a “10 per cent idling of European blast furnace fleet for at least part” of the September quarter, the analysts expect pulverised coal injection prices to be impacted.
But some recovery in steel production in Asia is expected to offset the lower demand for met coal, with Macquarie forecasting December quarter hard coking coal contracts to fall only by up to $10/t.
For his August strategic outlook, Patersons Securities coal analyst Andrew Harrington said the majority of Queensland’s coking coal was priced quarterly while the tonnage would continue to be based on longer-term supply amounts.
He expected PCI prices to increase from about $170/t to $190/t because of the higher September quarter benchmark for coking coal.
“Overall the coal market remains robust even though it is not being reflected in the share prices of the suppliers,” he said.
“Concerns that import demand from China may start to flag still exists but continues to be defied.”
