NAB said in its latest Minerals Energy Outlook that while it expects a modest pickup in global steel output to support a marginally higher average price of $84/t in 2017, the bank warned that “risks appear weighted to the downside”

Spot prices for hard coking coal have tracked broadly sideways since mid-November 2015 – with the active Asia Clear Australian contract at around $75/t. The benchmark quarterly contract price for Q1 was settled considerably lower at $81/t, down from $89/t in Q4.

NAB said the weakness in global steel output impacting seaborne coal demand had been particularly noticeable in China, where imports fell by around 23% in 2015 to 48Mt.

“With China’s steel output likely to fall further in 2016, there seems little prospect for a recovery in metallurgical coal imports,” NAB said.

Chinese steel production appeared to have been more reliant on domestic coal in 2015 – with metallurgical coal imports having fallen faster than pig iron production (-3.7%).

NAB’s estimate of China’s domestic coal consumption fell by just 1.3% in 2015, with domestic material providing 91% of steel mill requirements, up from almost 89% in 2014.

The bank warned that further price weakness – as demonstrated by the recent contract settlement – may force further supply cuts.

“Producers in North America have cut considerably across the past eighteen months, with US metallurgical coal exports totalling almost 42 million tonnes in 2015 – down around 27% – the lowest level since 2009,” NAB said, citing Platts figures.

“Similarly, Canadian metallurgical coal exports fell by 10% to 28 million tonnes in 2015. Weak seaborne demand and low prices are likely to keep North American exports constrained in 2016.”

Australian metallurgical coal exports slowed across the last quarter, with the total level for 2015 at 185.7Mt – a slight decline (-0.4%) from 2014.

“Given the weakness in global steel production, prospects for 2016 are modest at best, with the potential for another fall,” NAB said.