The recent uptrend in coking coal prices is forecast to be sustained by stronger demand from steelmakers in India, even as a proper rebalancing to the industry still remains in the future.
Coking coal spot prices appear to have hit a floor late last year when premium hard low-volatile coking coal fell to about $74/t fob Australia and now will be supported by supply concerns going forward, a Indian steelmaker said on the sidelines of the Coaltrans India conference.
"We can see from here that the price floor was already reached, so barring any catastrophe we should no longer wonder about how far it can fall," the steelmaker said. "Buyers are taking their positions much faster now. With the Anglo American mine sale and the supply issues we have seen, we can no longer take cheap prices for granted."
The spot price for tier-one coking coal was last assessed by Argus at $79.30/t fob Australia.
But coking coal producers will also struggle to sustainably lift tier-one spot prices above $80/t fob Australia unless the prospects for steelmakers in Asia strongly improve, the steelmaker said.
"It looks like we will have another tough year in 2016 and any big rebound is at least another year away," he said. "But the situation has also changed. Steelmakers in India are joining together to try to keep supply at sustainable levels, so we think we've gotten through the worst of it."
India is also at a watershed for steel consumption with demand expected to rise to 190mn t by 2025, which could pull coking coal pricing further in the direction of the subcontinent, Tata Steel procurement director Rajiv Mukerji said at the conference.
"There is an interesting trend we are seeing where China was always the clearing market for coking coal, but that is beginning to change," Mukerji said. "The government focus on infrastructure projects is set to increase, but we also need enhancements like enabling our ports to handle Capesize cargoes of coking coal."
The Indian government's budget released at the end of last month outlines few allocations for steel-intensive development plans, but protectionist measures such as the minimum import price for steel will keep Indian mills from posting deeper losses, another major Indian coking coal buyer said.
"We saw this week that the US imposed at 266pc tax on some Chinese steel imports. We might take longer to impose those measures, but we know now that we have the full support of the Indian government and China will be forced to reduce their capacity," the buyer said.
