Asian Met Coal Prices Seen Rangebound in Q3 With Eyes on Indian Appetite

 

 July 26, 2024 - The seaborne metallurgical coal market will likely remain rangebound in the third quarter as ample cargo supplies offset the fears of tight supply following a mine incident, while the market awaited India's return for post-monsoon procurement.

The third quarter began with the miner Anglo American suspending production at Australia's Grosvenor coal mine in Queensland following an underground coal gas ignition incident on June 29, fueling concerns of a supply shortage. However, the miner has since committed buyers on third-quarter supplies, while declaring force majeure on fourth-quarter deliveries.

The benchmark Platts premium low-volatile hard coking coal prices on FOB Australia basis fell by 4.3% or $10.5/mt on the quarter to $234/mt on June 28, while the PLV CFR China prices fell by $10/mt, or 3.9%, over the same period to $247/mt, according to S&P Global Commodity Insights data.

Following Anglo's mine incident, PLV FOB Australia prices jumped 10.3% or $24/mt to $258/mt on July 2 as a trader secured replacement volumes amid uncertainty over July deliveries from the miner. But all the gains have since been wiped out as major buying markets remained on the sidelines.

 

Anglo American had previously indicated lower production volume in the second half of the calendar year was due to a planned longwall move. The mine incident at Grosvenor has exacerbated the supply tightness. Meanwhile, another major Australian miner is expected to undertake maintenance during the July-September quarter.

Miner South32's sale of its Illawarra metallurgical coal business in Australia to an entity owned by Golden Energy and Resources and M Resources earlier in the year is expected to be completed in the coming months and with that, the spot availability of Illawarra seen in the first half of 2024 is expected to taper, according to market participants.

Despite these supply issues, the market was flooded with cargoes which were unable to find buyers, primarily due to lukewarm interest in the Chinese and Indian markets. Adding to the oversupply, some end-users were also looking to resell their August-loading cargoes.

"There is no scarcity of coking coal in the market," an Indian steelmaker said.

Prices will be subdued until some tightness is observed in the market and that is likely towards the end of the quarter, when supply shortages from Anglo American's incident are felt, sources said. 

India's return awaited 

Indian end-users have largely been muted after procuring coking coal at cheaper levels in the second quarter to cover for the monsoon season.

Amid the Anglo mine incident, some end-users have also deferred their procurement plans because of the uncertainty in the market direction and the lull in steel demand.

Traditionally the July-September quarter is the slowest in terms of steel demand as the Indian monsoon season slows construction activity, while automotive sales remain sluggish.

Coking coal procurement is expected to rise in late August and September, ahead of steel demand picking up during the October-November festive season.

"Indian mills will come back in the market next month, but they will not be willing to pay a high price," an Indian coke producer said.

 

Ample seaborne coking coal in China 

Sufficient supply from Australian miners and slow buying in ex-China markets in Q2 had pushed a lot of seaborne coking coal cargoes to China.

The latest data from China's General Administration of Customs showed that in April-May, China imported 20.6 million mt of coking coal, up 22% from the prior two months or 35.9% year on year.

While China became the clearing market for seaborne coking coal, FOB prices moved more closely in line with CFR China prices over the period.

Chinese traders, rather than end-users, led the buying of forward-delivery seaborne cargoes. With a gloomy domestic coking coal market outlook, traders could fend off part of the downward risks by hedging on futures markets such as the Dalian Commodity Exchange or Singapore Exchange, which offer yuan- and dollar-denominated derivatives, respectively.

Chinese end-users maintain ultra-low coking coal stocks and buy only as needed from port stocks, sources said. They have plenty of choices with seaborne coking coal piling up at major ports, especially in North and East China. 

Australian PCI prices regain ground 

Australia's low-vol PCI segment emerged as the bright spot in Q2. It reached $185/mt on FOB basis June 18 following a trade between a producer and an end-user, with its relative value to PLV FOB rising above 70% for the first time since late July 2023.

As demand continues to surface across multiple regions for Q3-loading cargoes, Australian producers appeared to be standing their ground on pricing north of $200/mt.

"That's not yet anywhere near the historic high [relativity]," due to the market shocks in Q2 2022 as a result of Russia's invasion of Ukraine, a source with an Australian miner said.

 

The segment gained support amid US sanctions against Russian producers of lower-ranked coals and most recently Sibanthracite group of companies in May, adding to buyers' difficulties in processing payments with Russian suppliers. 

End-users are increasingly turning to Australian PCI, a Russian miner source said. "There is a price for one to demand liquidity in a thinly-traded [Australian PCI spot] market."

That would prompt end-users to seek solutions elsewhere, for one, sourcing from non-sanctioned miners, "but there is a risk that the rest will be added to the sanction list later in Q3," the source said.

Some were also looking to buy from China, despite export quotas and complex procedures to secure a China-origin cargo, a Southeast Asia-based buyer source said. 

With buyers turning to China for relief, "usually these sort of decisions won't make sense for seaborne buyers [for economics and quality reasons]. You just hear occasionally when the market is very tight," said another Australian miner source.