Coal Age

JUL-AUG 2018

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Page 35 of 51

34 July/August 2018 met coal outlook Stability characterized metallurgical coal markets during May, with prices staying flat for much of the month as deals re- mained elusive. The drop in activity oc- curred because buyers in China and India for the most part felt comfortably sup- plied, while suppliers — seeing markets tighten as port delays grew — balked at offering lowering prices. Healthy availabil- ity of coal for June delivery contrasts with heightened concerns over Australian sup- plies for July, and, as they entered June, the price impasse looked to be breaking. Pric- es moved upward, suggesting that supply concerns were coming to the fore again. The influence of a restructuring Chi- nese steel and mining industry continues to underpin strong prices. Steel demand and hot metal production in China and India remains a positive force on coal mar- kets, while isolated limits on coke produc- tion in China have paradoxically improved demand for premium coals in Shanxi. Sharp price increases for coke in China — due to the oven closures in Jiangsu and Shandong — have been matched by more modest increases in coking coal prices. Little change is expected anytime soon. A new round of environmental checks in China will undoubtedly impact coke and coal demand in the next couple of months, but the effect should be reasonably short- lived. Supply should improve over the course of the second-half of 2018 in China and Aus- tralia, but Queensland's rail dispute is likely to impact exports through the third quarter. In China, moves to curtail overproduction at a number of private mines, suggests the re- cent production growth has not been strictly legal, and might be difficult to sustain. WoodMac's forecast incorporates a shift in supply-demand balance toward greater supply for the second half of the year, but domestic prices in China are ex- pected to remain high, offering continued support to international prices. Winter re- strictions on Chinese steel, iron and coke production could see some weakness in Q4, but prices won't fall below equivalent Chinese contract prices. Prices for Coking Coals Prices for premium hard-coking coals (HCCs) were treading water during May, weighed down by a slew of available car- goes, and slow Chinese imports, but buoyed by solid Chinese coke production, and fears surrounding Australia's ongoing rail dispute. Prices rose above US$185 per metric ton (mt) early in the month — from a low of US$175/mt in April — but until the last day of the month, little had moved as deals dried up. Buyers and sellers attempt- ed to see who blinked first. The renewed price strength in May meant second-quar- ter contract HCC prices will be fixed at close to US$197/mt, based on three-month trailing spot prices (i.e., March to May). As premium prices stalled, other met coals looked for their own direction. Coals for pulverized coal injection (PCI) made some slight gains, rising to around US$140/ mt and thereby reducing the differential to premium HCCs. Growing demand in India in particular kept that segment tight. U.S. high-vol (HV ) and low-vol (LV ) coal prices continued to decline slowly, with HV coals shifting back to a position below Asian LV HCC prices, for the first time in two months. As June began, the market looked to be tightening for premium materials. There is heightened risk that Australia's traditional export surge at the end of the fiscal year will collide head-on with Aurizon Network's dispute with the QCA. Amended mainte- nance plans could constrain exports. Coal prices have also started to tight- en in China. Despite some restrictions on coke production in Jiangsu and Shandong, overall production rates have been high as coke makers in places like Shanxi make up for the lost supply. Blast furnace produc- tion has also remained high, supporting demand for coke and helping to push up coke prices by RMB350/mt (US$51.70/mt) during May. These increased prices have in turn incentivized many coke makers to increase stocks of coking coal. Meanwhile, HCCs from Shanxi are in high demand, as production of fat coal fal- tered during May in Inner Mongolia, a re- sult of some impromptu safety shutdowns in Wuhai city, after recent accidents. Inner Mongolian coke makers have had little choice but to replace local coals with oth- Glencore's Mount Owen Complex exports 8.1 million metric tons per year from Queensland's Bowen Basin. The Short-term Outlook for Global Metallurgical Coal Supply concerns push the market higher met coal outlook

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