Coking coal has more than doubled in two weeks on the back of disruption to Australia’s coal exports associated with Cyclone Debbie, which caused the evacuation of several mines and damaged coal trains supplying export terminals, forcing some miners to declare force majeure on their deliveries.
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 following the natural disaster.
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?
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. Russia, Mongolia and Indonesia are other potential sources of coking coal for China’s hungry mills. Meanwhile, North Korea is out of China’s exporter list after Beijing ordered an import ban following North Korean missile tests.
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 as since steelmakers will potentially pass on the increase to consumers, giving a boost to weakening steel prices in China.