While a stimulus-injected China helped save the GFC-smacked coking coal export trade in 2009, China is poised to become met coal’s great villain in 2015.

The fallout is beyond the weakness in steel demand, with spot prices for HCC, semi-soft coking coal and pulverised coal injection-grade met coal continuing to fall in contrast to iron ore.

“The Platts premium HCC spot price benchmark is down 23% year to date to just $US85 a tonne free on board Australia, which is the lowest level since November 2006, and the semi-soft/PCI assessments have done little better,” Macquarie Wealth Management said in a report last week.

“We would identify US dollar cost deflation as being the main driver, but another key reason is oversupply in China’s domestic met coal market. Chinese apparent production of coking coal has grown strongly over the past nine` months and with domestic demand having collapsed over the same period, this has manifested itself in large exports of metallurgical coke.”

The broker noted that Chinese coking coal production increased 12% year-on-year in the second half of 2014, despite domestic prices being down 23% year-on-year for that period.

This growth was at least partly credited to a ramp up from consolidated Shanxi-based mines which were previously closed in 2007/2008 for safety reasons.

Consecutive monthly declines in Chinese steel consumption since November has also led to a ramp up in Chinese met coke exports.

“The Chinese solution has been to export the domestic oversupply to the seaborne market, bearing in mind the large proportion of state-owned enterprise players in both of these sectors, and the secondary benefit for steel mills of keeping coke plants running to produce exhaust gases to fuel other furnaces,” Macquarie said.

“The coke plant is not easy to turn off and on.”

In terms of the recent March quarter, Macquarie said China’s net equivalent exports of coking coal were at their highest level since the June quarter of 2008, with China a net exporter in four of the past five quarters.

“This is effectively reducing ex-China direct met coal demand – particularly in key consumers such as India and Japan,” the broker said.

Overall the impacts to the coking coal trade were deemed enough to sustain low met coal prices for longer, or even trigger more production removing mine closures and cutbacks.

“As long as China manages to find an avenue for its ever-cheaper domestic coking coal surplus in the seaborne market, US dollar-denominated seaborne met coal prices will remain under pressure – indeed we may even need to see further cuts to incumbent supply,” Macquarie said.

“Meanwhile, the timing on any push back to incentive pricing, even given stagnant met coal seaborne supply growth, moves further and further out.”