Coking Coal

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This morning in metals news, China ramped up its aluminum output in December, British police are looking into allegations of pension fraud against steelworkers and India considers a plan to have its steel ministry oversee iron ore and coal operations.

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Chinese Aluminum Output in December

China upped its aluminum output to close 2017, jumping back up to its highest total since June 2017, Reuters reported.

According to the report, China produced 32.27 million tons of aluminum last, up 1.6% from 2016, per National Bureau of Statistic Data.

British Police Look Into Possible Pension Fraud

According to the Financial Times, police in south Wales are looking into allegations that some Port Talbot steelworkers have been victims of pension fraud.

The complaints were put forth by the British Steel Pension Scheme.

Iron Ore, Coking Coal Mining to Steel Ministry?

India is considering transferring control of iron ore and coking coal mining to its steel ministry, Bloomberg reported, in an effort to boost the country’s burgeoning steelmaking industry.

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A shift in regulatory oversight from the mines and coal ministries to the steel ministry requires approval from the prime minister’s office and the ministries, according to the report.

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.

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.

A recent CNBC article states that Australia is the world’s biggest coking coal exporter and therefore, 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.

It seems like a bizarre question when iron ore has been on a bull run this year and coking coal producer Glencore has just agreed first-quarter contract prices with Nippon Steel that are the highest since 2011.

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But Morgan Stanley, in its 2017 Outlook, takes a bullish stance on base metals but forecasts bulk commodities such as iron ore and coking coal will do no more than tread water next year. Trying to call a peak in any market is, at best, a stab in the dark, but coking coal spot prices appeared to be easing just as contract prices set a new near-term record. Read more

Just when life was getting good for Indian steelmakers, the price of coking coal goes up.

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The increasing price of global coking coal, a key ingredient in steelmaking, may squeeze Indian steelmakers’ profitability and deepen financial risks, according to a Fitch Ratings report. Prices had crossed the $190-a-metric-ton mark recently. The steel companies risk will also increase if the high prices persist while domestic steel demand growth remains low. Which essentially means that the increase in raw material costs for Indian steel producers may shrink their margins, if the rise is not passed on to consumers.

Coking Coal Imports

The bulk of India’s coking coal is imported to compensate for the lack of good quality coal from the country’s own mines. In addition to steel plants, the raw material used by coal-based power plants, cement plants, captive power plants, sponge iron plants, and almost all depend on importing non-coking coal.

Coke is imported mainly by pig-iron manufacturers and iron and steel sector consumers using mini-blast furnaces. India imported around 200 million mt of coal last financial year to top domestic production of 640 mmt.

Steel mills Molten iron smelting furnace production line

Steel mills in India are turning to new suppliers and reopened mines to provide coking coal with prices up. Source: AdobeStock/zjk.

So India, despite efforts by the government to reduce its dependence on foreign coking coal, has to import it from countries like Indonesia, South Africa, Russia and Australia. Coking coal prices in Australia have surged in the last few months, so what’s good news for that nation is bad news for India’s steel makers. Read more

Our Raw Steel MMI rose 2 points or by 4%. Wait, what? Didn’t steel prices fall in September?

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Yes, they did. Significantly, domestically, but the index collects and weights 13 global steel and raw material price points. So, while prices in the U.S. fell, international prices held well and coking coal prices saw a spectacular increase.


The price of Chinese coking coal, a vital ingredient in the steelmaking process, more than doubled in September. Behind the surge are disruptions in Australia, a leading supplier to the export market, and production curbs in China caused by government restrictions.

Meanwhile, steel prices in China were flat following the price divergence we already witnessed last month, see falling US prices and rising/flat international prices. The rally in U.S. steel prices, which was driven mainly by trade cases, is now fading.

Global steel production continues to increase. In August, production in China rose 3% year-on-year. The country still has a lot work to do if it wants to meet its target of reducing capacity. Meanwhile, U.S. steel production fell in August.

Taxing Chinese Supply Creates Opportunity Elsewhere

Despite a recovery in prices during the first half, U.S. producers haven’t increased output to create an artificial domestic shortage. However, there is no global shortage and falling domestic output is only pushing steel buyers to source their needs from overseas.

The clearest example is cold-rolled coil (CRC). Prior to the recent trade cases, China accounted for more than half of U.S. CRC imports. Imports from China were effectively shut down thanks to a super-high dumping/countervailing duty margin of 265%. However, it seems that imports now are coming from other sources. In August, cold-rolled coil imports rose almost 11% from last year, recording the highest levels in 13 months.

Tariffs Can’t Stop International Prices From Falling

In a bid to protect their turf from the new wave of steel imports, U.S. steel companies are filing a case against transshipments of Chinese steel products from Vietnam.

U.S. steelmakers will likely find it difficult to prove those allegations and, even if they do, those same imports could come from other countries. Trade cases can provide short-term breathers in the current import environment, but — in the medium- to long-term — U.S. steel companies will have to become more competitive to win the market back from imports. Although U.S. prices have fallen recently, the spread between U.S. and international prices is still lucrative for domestic buyers to look for overseas for their material.

The key now is not only to watch domestic prices, but also international prices. Eventually, the current decline in domestic prices will find support if the gap between domestic and international prices narrows enough. On the other hand, if international prices start to slide, too, it might be difficult for U.S. steel prices to find a floor.

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BHP Billiton is planning to boost coal production in the next three years while no agreement has been reached about reducing Chinese aluminum overcapacity.

BHP Billiton Bullish on Coal

Top global miner BHP Billiton outlined plans to boost coal output by 8% over the next three years while slashing costs, and said it would only consider premium, lowest-cost assets for any acquisitions.

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BHP Billiton is the world’s top exporter of coking coal used in steelmaking and also a producer of energy coal. The Australian miner is in the enviable position of running profitable coal mines at a time when more than half the world’s coal mines are losing money.

Andy Home: No Agreement on Chinese Aluminum

“China has committed to ensure that its central government policies and support do not target the net expansion of steel capacity; and to actively and appropriately wind down ‘zombie enterprises’ through a range of efforts, including restructuring and bankruptcy.”

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This statement was made by U.S. Treasury Secretary Jack Lew earlier this month after high-level talks with Chinese officials in Beijing. Reuters’ Andy Home, however, writes that while there has, at least, been a meeting of the minds in regards to Chinese steel capacity, the two sides failed to reach any sort of agreement regarding aluminum other than to hold more talks, according to Lew.

Usually, Iron ore and coking coal move in lock step. The two raw materials for steel production are driven by the same demand factor, – at least for seaborne trade consumption – by the Chinese, Japanese and Korean steel industries.

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Often production comes from the same or similar multinational suppliers – Rio Tinto Group, BHP Billiton, Glencore PLC. Read more

Early  this month, Indian authorities launched the second stage of coal block auctions after a successful first stage in February.

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The two rounds of auction, launched under the government’s coal reforms, are expected to bring millions of dollars, helping India nearly wipe out its fiscal deficit, but that’s only part of the story.

New Coal Auctions

The auctions, analysts believe, are likely to boost India’s steel sector since the reforms will help improve the availability of coking coal, a crucial raw material in the making of steel, within the nation.

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Metallurgical or coking coal contracts for Q1 2015 hit another quarterly low according to HSBC with hard-coking coal at $117/metric ton, semi-soft coking coal at $86/mt, and ULV PCI (ultra-low, volatile, pulverized coal-injection) at $99/mt CFR China, continuing a downward trend.

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Coking coal prices have suffered from many of the same dynamics as iron ore. Excessive investment in recent years has boosted supply, with more planned to come on-stream. Although some of those under development are expected to be delayed in 2015 due to current prices, others such as Mozambique where the completion of the Nacala corridor is expected this month, are set to add significant extra capacity.

The devaluation of the Russian Ruble has made Russian exporters more aggressive and the strong dollar generally has helped compensate miners for the lower prices. Even so HSBC estimates that at $117/mt benchmark coal some 35% (around 108 million tons) of global and 65% of US seaborne supply is losing money and that some 51 mt (30%) of Australian capacity is under strain. Indeed Australian miners have already been asked to take a 38% pay cut at the Griffen mine and adhere to a 35-hour work week slashing weekend supplements and overtime. Further closures and curtailments, particularly in the US, are likely this year.

Source: The Steel Index

Source: The Steel Index

Demand is not likely to come to the rescue. Crude steel production growth is possibly going to be no more than 1.1% this year with short term restocking providing only a temporary relief to miners in terms of volume.

Read more

India took its first step on the road to coal mining reform by initiating the auction of select coal blocks over the weekend. Environmentalists, though, were not too happy about it.

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In September, India’s top court canceled 98% of coal mine permits previously allotted to companies over the last two decades, leaving many analysts shell-shocked and pondering the future of the country’s energy sector.

The new government promised it would usher in reforms in the sector quickly. A new bill — the Mines and Minerals (Development and Regulation) Amendment Ordinance — sought to make amends to the process of coal mine allocations. The previous process was stained by corruption allegations. Previous governments had merely allocated coal mines but under the new system, companies were given an opportunity to bid for mining rights in the interests of transparency.

The government has put 19 blocks up for auction in the first round that started on Feb. 14. This phase will end on Feb. 22, and all sale formalities will be completed by March 31. The mines being auctioned are in the provinces of Odisha, Jharkhand, Chhattisgarh and Goa.

The first few days have seen aggressive bidding for coal blocks by some of India’s biggest companies, such as Reliance, Adani Power and Hindalco. Some of the other companies who technically qualified to bid were Jindal Steel and Power Ltd. (JSPL), Bharat Aluminium Co Ltd. (Balco), Essar Power M P Ltd., GMR Chhattisgarh Energy Ltd., GVK Power, JSW Energy, Ambuja Cement and Hindustan Zinc.

The auction process is likely to fetch the Indian Government an estimated $3.4 billion (Rs 21,000 crore). If that happens, the government of India will use the money to clear its fiscal deficit.

India’s estimated coal reserves are at about 301 billion metric tons, but Indian companies have had to import coal because of a mining stoppage caused by the corruption allegations followed by the court order.

While the government is expectedly pleased with the manner in which the auction is progressing, saying the poorer provinces would ultimately reap the harvest of coal block auctions, some environmentalists had a different take. According to them, the present government missed the bus in really undertaking “true reforms” on the natural resource allocation. There was no point in allotting the mines first without evaluating their impact on the surrounding environment, was their take.

There are about 60,000 applications for mining concessions pending with central and state governments. The government said it would implement a different method for auctioning coal blocks meant for power producers, as compared to the present round which was largely meant for coal to be used by steel and cement producers.

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The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.