Atlantic Coking Coal: Prices Flat in Low Liquidity
November 5, 2020 - US coking coal prices held largely steady today supported by limited liquidity on high-volatile coals, despite uncertainty over China's import restrictions and the impact of the second wave of Covid-19 lockdowns in Europe on steel demand.
The Argus daily fob Hampton Roads assessment for low-volatile coking coal edged down by 50¢/t to $109/t, weighed on by the weakness in the Australian premium low-volatile segment. The high-volatile A assessment is unchanged at $118.50/t fob Hampton Roads, buoyed by supply tightness stretching to the first quarter for key miners. High-volatile B was also assessed flat at $104/t fob Hampton Roads with the expectation that further first-quarter trades would rise on supply limitations following output cuts earlier this year.
The sale of a cargo of higher-quality US low-volatile coal is being negotiated at $140/t cfr China, which would be at least $3/t higher than the price paid for two cargoes of Elkview low-volatile coking coal last week. But with a significant arbitrage opportunity still apparent for Australian coal, particularly in this low price climate, some continue to view China's import restrictions on Australian coal as a rebalancing exercise. "I think this is a rebalancing exercise and China will go back to shipping Australian coals by early next year," a miner said. "China is fundamentally short of low-volatile, low-sulphur and low-ash coals. US low-volatile coals are not the answer and US high-volatile coals are not an option as China already imports Mongolian coal," the miner added.
Russian coking coal remains in high demand in China, and Russian prices to China have gained around 20pc since the import ban on Australian coal. Deals are being done at a discount of 5pc or more to the fob Australian premium low-volatile value, assessed by Argus at $108.40/t today. Chinese trading firms are seeking to expand their base of Russian suppliers, but the degree to which Russian companies are able to take advantage of the extra Chinese demand created by the import ban is limited by the Russian rail capacity allocation system. Suppliers have to apply for capacity in advance, so will not always be able to transport extra tonnes to Russia's far east ports. A few large companies have most of the available capacity, and smaller companies often have to buy rail allocation capacity, which squeezes their margins. "Big miners don't have much time to transport other people's coal at the moment, with all the new demand from China," a trader said.
The start of new lockdowns in a number of European countries has somewhat dampened the renewed interest in spot coal that emerged in the third quarter. "After the ideas we had about mills restocking in October and November, people are taking a step back because of the lockdowns. A few buyers are restocking but probably less than we thought," one European trader said.
The Argus weekly fob Colombia mid-volatile assessment rose by $2.50/t to $107.50/t yesterday, with Colombian production costs rising and as strong domestic demand keeps export availability low. Miners prefer to sell to nearby coke plants, where demand is strong rather than to truck material several hundred kilometres to ports. "It's been really difficult to get a blend together for export," said a trader dealing in Colombian coking coal, "to assemble a cargo, you need 30-50 days, and you need a good purchasing plan. I'm not even sure you could find 60,000t in 50 days at the moment".