November 9, 2018 - Rising U.S. metallurgical coke consumption and tightened production capacity could lead to the country developing a structural shortage of met coke next year.

"Looking out to 2019 there's a chance that the U.S. will go, for the first time in years, from being coke long to slightly coke short," U.S. firm DTE Energy's director of coal trading, Mike Nobis, said at this week's MetCoke World Summit in Pittsburg. The country will probably need some imports "here and there to balance things out around the edge", he added.

One U.S. steelmaker made enquiries in Europe for some additional met coke in August, but market participants said the move was indicative of localised supply tightness rather than a structural U.S. shortage.

But the impact of U.S. Steel restarting two blast furnaces at its Granite City plant in the first half of this year is taking hold, tightening the domestic met coke market.

Furthermore, Nobis pointed out that U.S. coke production capacity has tightened since steel capacity utilisation rates previously touched 80pc, such as during the 2016 closure of DTE's Shenango coke plant on Neville Island — a casualty of the last market downturn.

Just last month, the Tonawanda foundry coke plant in North Buffalo was shut down. "It was announced overnight and took a lot of us by surprise," a coking coal producer said on the sidelines of the conference. Tonawanda Coke had been caught up in legal disputes surrounding pollution concerns and air toxicity, and has since filed for Chapter 11 bankruptcy protection.

There is some scope for product replacement to offset particular tightness in certain parts of the coke market, such as using more nut coke when there are shortages of furnace coke, Nobis said. But there are limits to how far the balance can be adjusted, and this will vary depending on the facility.

Market participants see little potential for construction of new met coke facilities for now, citing lengthy permitting processes and reluctance on the investment side.

But conference delegates are cautious about the longer-term outlook for U.S. steel production growth and met coke demand, with several expecting the market to balance out and numerous metrics to return in the medium term to levels seen before implementation of the US' Section 232 tariffs on steel and aluminium imports.

Consultancy Wood Mackenzie's director for global metallurgical coal markets, Jim Truman, said the company had initially thought the Section 232 tariffs would remove around 10.6mn t/yr of U.S. steel imports, to be replaced with domestic production and equating to a 3.8mn t/yr rise in U.S. coking coal requirements. But the reality has been more muted, with imports so far in 2018 down by around 5.2mn t compared with a year earlier, and steel production expected to be up by 4.5mn t, according to Wood Mackenzie estimates.

"In the long term, we think things will balance out and steel imports will return to their previous level," Truman said, noting that the 25pc steel import tariff has resulted in a rise of around 50pc in local steel prices.

There are also constraints to U.S. steel production growth at an equipment level, a domestic coking coal supplier said. "A lot of facilities start running into trouble and have problems if you push [capacity utilisation] rates much above say 84pc," he said.