According to a Mineweb article, Scotiabank economist Patricia Mohr said in her monthly analysis that coking coal is set for further rises as world steel production in March at 120.3 million tons surpassed the previous peak in March 2008 of 119.9 million tons and a 30.6% increase on just one year ago.
Spot prices rose on the back of force majeure being declared on shipments from BHP’s Hay Point in Australia and major coal mine accidents in the US and China squeezed an already tight market. Most of China’s coking coal comes from Shanxi province where following a flooding accident in which 153 miners were trapped underground the authorities are likely to further tighten safety standards in the area. Shanxi province has 55% of China’s coking coal reserves and produces 40% of its hard coking coal. The government is trying to drive through consolidation of the many small mines into larger more responsible corporations, although ironically the flooding took place at Wangialing a 6mtpy mine 50% owned by industry champion China Coal.
China’s crude steel production remained strong this quarter up 26% year on year to 103 mt in Jan-Feb 2010 accounting for 47% of global steel output. China continued to be a significant net coking coal importer this year from being the world’s largest coke exporter in 2008, importing 7.33 million tons in Jan-Feb 2010 against exporting 13 million tons in 2008 according to an HSBC quarterly report to investors.
Meanwhile as demand remains strong and supply remains tight, BHP has moved a significant portion of its hard coking coal contracts to short term market based pricing for 2010. Q2 prices in Europe, China, India and Japan have been set at about US$200 per ton, a 55% increase over last year. HSBC is expecting prices to rise further in Q3/Q4, by 25% to US$250 per ton. As Shanghai coking coal prices rose 13% to RMB 1520 per ton (US$233/mt) from mid March, domestic prices are likely to rise further to match imported price levels. With China (and the rest of Asia and Europe) paying top dollar for both iron ore and coking coal they are unlikely to feature as major suppliers to the US market where mills are either vertically integrated with their own ore reserves, or benefit from long term price supply agreements, or are scrap based mini mills. Eventually global prices will feed through to the US market but for this year the US producers are on the right side of the cost curve.