Surging Coking Coal Could Lift Steel Prices in China

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Coking coal has more than doubled in a matter of days as a cyclone caused disruptions to Australia’s coal exports. The impact was significant and several miners had to declare force majeure on their coal deliveries.

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It is estimated that shipments accounting for 50% of the global coking coal supply will be delayed and that Australia will need at least two months to regularize its coking coal exports after the natural disaster.

Australian coking coal’s free-on-board price in US dollars per metric ton. Source:mining.com.

Coking coal prices rose sharply in the second half of last year when China reduced allowable work days at the country’s coal mines, which reduced output and tightened the global coking coal market. These events added fuel to rising steel prices in China. But a slump in coking coal prices since December added pressure to steel prices, especially in China since the country strongly depends on the commodity to make steel.

Can Higher Coking Coal Prices Give a New Boost to Chinese Steel Prices?

The Chinese cold-rolled coil price. Source: MetalMiner IndX.

Australia is the world’s biggest coking coal exporter and is China’s largest supplier. The recent disruptions are forcing China to look for alternative supplies such as Russia, Mongolia or Indonesia. In addition, China won’t import more coking from North Korea as a punishment to recent North Korean missile tests.

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Higher coking coal prices translate into higher input costs, particularly in China. Chinese steel prices set the floor for international steel prices, a topic that we discussed recently. Steel buyers should monitor the recent surge in coking coal prices closely since steelmakers will potentially pass on the increase to consumers, giving a boost to weakening steel prices in China.

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