Viewpoint: US met coal miners expect more upside

  • Market: Coking coal
  • 05/26/21

US coking coal producers say spot prices have yet to hit a ceiling, despite the lull in China, as buyers digest surging offer levels and plans by top economic planning body the NDRC to stabilise steel and iron ore prices.

While last week's US low-volatile offers approaching $300/t cfr China and a dip in Chinese steel prices has checked buying, suppliers and buyers say demand is unchanged.

Mongolian exports to China are still affected by Covid-19 restrictions at the Ceke and Ganqimaodu border posts, while US, Canadian and Russian alternatives to Australian coal have covered just over half of China's regular imports. China imported 14.74mn t of coking coal in January-April, down from 27.08mn t a year earlier.

Chinese mills have also looked to domestic mines to supply some of their needs. But a supply gap remains, and this is reflected in the rise in US prices since the second half of last year. Premium low-volatile US coals, such as Oak Grove and Blue Creek 7, are a natural fit for China and have led the increase in prices. The rise in Atlantic low-volatile coking coal prices has extended to US high-volatile material since late last year. Arch Resources concluded a 300,000t year-long deal for high volatile A coal into China in December, and more recently sold a spot cargo into China at $179/t fob Hampton Roads. The share of Metinvest's US coal in China has also grown, with its low-volatile Affinity coals well received and its Wellmore and Carter Roag brands increasingly visible.

Prices are still below the highs of 2018, when US values rose in line with Australian values. In January 2018, Argus-assessed Australian premium low-volatile prices hit the year's high of $260.50/t fob and averaged $207.42/t fob for the rest of the year, reflecting Chinese demand. In the same year, US low-volatile coal hit a high of $206/t fob Hampton Roads and averaged $188.17/t fob, driven by strong Australian prices. The US high-volatile A price averaged $198.11/t fob Hampton Roads in 2018, and hit a high of $218/t.

While China also imposed import controls on coals in 2018, it was a general ban to support domestic coal mining — not a ban on Australian coals alone. US coal exports to China were subjected a 25pc tariff from late August 2018, removing 2.8mn t, or 4pc, of China's coking coal imports in 2017. With Beijing lifting the tariff last year, US firms' access to China has improved. Chinese buyers started seeking US spot cargoes in late February 2020, ahead of tariff exemptions that began on 2 March.

US producers are only restricted by their ability to offer sufficient volumes, following last year's output cuts of around 20pc and maximised term commitments to European, South American and domestic buyers.

Chinese buyers still expect the falling steel prices of the last week and deteriorating steel margins to limit acceptance of rising coking coal prices. Some Chinese participants say prices could start falling in June, particularly as many late-June and July-loading US cargoes are understood to be held by trading firms, rather than mills.

The high cost of freight has also compounded the rise in cfr China prices, which was largely driven by demand and tight supply. But as long as restrictions are in place on the Mongolia border, Chinese mills will have little choice but to look to US, Canadian and Russian imports. Panamax rates for coal cargoes on the route from the US east coast to China are estimated at $50-55/t this week, up by about $20/t from the start of this year.

Other pressure points

US coking prices are supported by other factors, including strong export demand from Europe and Brazil, and domestic demand.

US domestic demand has been strong since the second half of last year, with the Argus-assessed domestic Midwest hot-rolled coil (HRC) assessment exceeding $1,600/st yesterday. Coke consumption in the US has been strong as a result, and US integrated steelmaker Cleveland Cliffs is due to restart its Monessen coke plant in August, adding to domestic demand.

US met coke producer SunCoke Energy returned to full capacity in the first quarter and is investing at the Jewell coke plant in West Virginia to allow it to start producing foundry coke. Jewell currently sources around 1mn st/yr of coal from Virginia and southern West Virginia.

New high-volatile A production coming to market from Arch Resource's Leer South project in the third quarter is expected to find buyers in China. Since the 2018 import bans, Chinese mills have been adjusting their blends to reduce reliance on Australian coal, shifting towards burning more imported high-volatile material with domestically produced coal.

Australia low vol, US low vol, US high vol A prices $/t

Sharelinkedin-sharetwitter-sharefacebook-shareemail-share

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

News
02/20/24

BMA's Australian coal at low end of output target

BMA's Australian coal at low end of output target

Sydney, 20 February (Argus) — BHP Mitsubishi Alliance's (BMA) Australian coal production is trending towards the bottom half of its decade-low guidance for the 2023-24 fiscal year to 30 June, as heavy rainfall disrupts production. BMA, which is 50pc owned by Australian resources firm BHP and 50pc by Japanese trading house Mitsubishi, cut its 2023-24 guidance to 46mn-50mn t of metallurgical coal in January from the previous guidance of 56mn-62mn t issued in July. But heavy rainfall so far this year means it is trending towards the lower half, according to BHP chief executive Mike Henry. The firm was already operating on low inventories because of higher than average rainfall in 2022, as the La Nina weather pattern delivered increased rainfall to the east coast of Australia. This meant that heavy rainfall in 2023 and early 2024 has quickly flown through into disruptions to production, although the firm is working on building inventories through the system, Henry added. The wet end to 2023 and start of 2024 was not expected because of the El Nino weather phenomenon that typically drives drought conditions on the east coast . The atypical wet weather has prompted US-Australian coal mining firm Coronado to factor in more heavy rainfall disruptions in Queensland into its 2024 guidance . Around 3mn-4.5mn t of BHP's cut in BMA guidance is because of the planned sale to Australian mining firm Whitehaven of its Blackwater and Daunia coking and thermal coal mines in Queensland, which is on track to be completed on 2 April. BHP estimates that the sale will increase its proportion of premium hard coking coal so 86pc of its Queensland coal sales from 64pc now and 55pc prior to its sale of its 80pc stake of BHP Mitsui Corporation to Australian independent Stanmore in 2022 . Henry remains optimistic on the outlook for coking coal prices, with demand growth from India and a muted supply response. But he argues that an effective tax rate of 62pc in Queensland following higher royalty rates imposed in July 2022 makes it an unattractive investment opportunity. BHP despite the lower production outlook retained BMA's cost guidance, which it revised in January, for 2023-24 at $110-116/t. The Argus premium hard coking coal price averaged $295.86/t in 2023, down from $365.60/t in 2022 but up from $223.16/t in 2021 and $124.26/t in 2020. By Jo Clarke Australian metallurgical coal prices ($/t) Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Read More
News

More rainfall cuts Coronado's Australian coal outlook


02/20/24
News
02/20/24

More rainfall cuts Coronado's Australian coal outlook

Sydney, 20 February (Argus) — US-Australian coal producer Coronado Coal is factoring in new Australian wet weather patterns in its unambitious saleable coal guidance of 16.4mn-17.2mn t for 2024. Wetter than expected weather in Queensland in 2023 and port delays contributed to Coronado selling 15.8mn t of coal in 2023 , missing its revised guidance of 16.2mn-16.4mn t . Coronado is investing to expand metallurgical coal sales from Australia and the US, yet the 2024 guidance compares with the original 2023 target of 16.8mn-17.2mn t set in February 2023 . This is partly to allow growth plans to push production across Australia and the US to 20.5mn t/yr over the next couple of years. But it also reflects the firm allowing for extra disruption from heavy rainfall at its Curragh operation in Queensland, rather than using a straight 10-year average, as has been standard. After a very wet 2020-22, associated with the La Nina weather pattern, 2023 was meant to be a drier year dominated by an El Nino trend that usually brings drier than average weather to the east coast of Australia. But the coal mining regions in Queensland have had a wet 2023, with particularly heavy rainfall from November 2023 into 2024. This is forcing mining firms to reconsider their production and sales expectations from mines in Queensland. Australian coking coal exports for 2023 were 151.28mn t , which is the least shipped since 2012, down from 160.53mn t in 2022 and a peak of 186.83mn t in 2016, according to Australian Bureau of Statistics data supplied by GTT. This was despite firmer prices in 2023, particularly for high-grade metallurgical coal sold from Queensland, that should have driven producers to increase supplies. Demand for Australian coking coal will continue to grow driven by India but supplies remain constrained, according to Coronado chief financial officer Gerhard Ziems. Coronado reported a profit of $156.1mn in 2023, down from $771.7mn in 2022, but maintained a modest dividend payout as it looks to deploy capital to grow its capacity to supply the metallurgical coal business. It has internal growth plans, including expanding the Curragh metallurgical and thermal coal mine in Queensland to 13.5mn t/yr in 2025 and its US coal mines to 7mn t in 2025. The Argus premium hard coking coal price averaged $295.86/t in 2023, down from $365.60/t in 2022 but up from $223.16/t in 2021 and $124.26/t in 2020. By Jo Clarke Australian metallurgical coal prices ($/t) Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Aurizon cuts Australian coal haulage guidance


02/12/24
News
02/12/24

Aurizon cuts Australian coal haulage guidance

Sydney, 12 February (Argus) — Australian rail firm Aurizon has cut its coal volume guidance for the 2023-24 fiscal year to 30 June, as the end of mining at Wilkie Creek and wider coal mine production problems offset output increases at Olive Downs and New Acland. Aurizon had targeted to increase coal haulage by 10pc in 2023-24 from the 185mn t it hauled in 2022-23 but revised that to 5pc year-on-year growth when it announced its half-year results on 12 February. This implies a target of 194mn t for 2023-24. It hauled 94mn t during July-December, leaving it a target of 100mn t for January-June. Wet weather in Queensland in late December, through January and into February has disrupted some operations in the wider coal industry. But it has been less disruptive to Aurizon's coal operations than previous Queensland wet seasons, the firm's managing director Andrew Hardy said. The firm hauled 94.5mn t of coal during January-June 2023 when flooding cut access to some mines. Aurizon's August guidance of 10pc growth in haulage was based partly on a contract to deliver coal from the 2.4mn t/yr New Wilkie mine near Dalby, Queensland but mining has stopped after the operator entered administration](https://direct.argusmedia.com/newsandanalysis/article/2524314). Aurizon is still talking with the receivers and some cargoes are being loaded from stocks but full contract volumes are unlikely to be met. Haulage increased by 70pc during July-December compared with a year earlier on the West Morton line, as New Hope increased production at its New Acland mine . It was also up for New South Wales (NSW), Moura and Blackwater lines because of drier conditions than a year earlier. This was offset by 16pc and 6pc lower haulage on the Newlands and Goonyella lines respectively. Newlands runs south from Abbot Point port to North Goonyella, servicing Glencore's 2.5mn t/yr Collinsville thermal coal mine and a handful of mines owned by Australian mining firm QCoal. Goonyella runs west from the adjacent ports of Hay Point and Dalrymple Bay Coal terminal to join with Newlands at North Goonyella, servicing more than 20 mines in the Bowen basin . Aurizon started hauling coal for the 4.5mn t/yr Olive Downs metallurgical coal mine in January, which will travel on the Goonyella line. Aurizon is operating at around 82pc utilisation rates, up from 78pc during the Covid-19 pandemic and is aiming to return to 90pc. But it is facing competition from BMA rail in Queensland and Magnetic Rail in NSW, as well as Pacific National in both states. By Jo Clarke Aurizon coal haulage (mn t) Jul-Dec '23 Jan-Jul '23 Jul-Dec '22 Central Queensland Coal Network Newlands 6.7 8.1 8.0 Goonyella 28.0 30.4 29.7 Blackwater 24.0 21.9 22.5 Moura 7.7 6.3 6.7 Total 66.3 66.7 66.9 NSW and SE Queensland West Moreton 1.7 1.1 1.0 Hunter valley/Illawarra 26.0 26.7 22.6 Total 27.7 27.8 23.6 Total coal 94.0 94.5 90.5 Source: Aurizon Totals may not add up because of rounding Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

El Nino to end in April-May: Australia’s BoM


02/06/24
News
02/06/24

El Nino to end in April-May: Australia’s BoM

Sydney, 6 February (Argus) — The El Nino weather phenomenon has peaked and is declining, Australia's Bureau of Meteorology (BoM) said, pointing to neutral El Nino–Southern Oscillation levels developing in the southern hemisphere from April. International forecasts and observations suggest surface temperatures in the equatorial Pacific are expected to return to neutral levels, indicating neither an El Nino nor La Nina phenomenon by April or May, with the latest climate model from the BoM returning to neutral in June. The forecast for more neutral climate drivers comes after a wetter than expected summer for much of eastern Australia, foreshadowed by a positive Southern Annular Mode (SAM) in December-January, which typically brings above average rainfall for parts of eastern Australia and Tasmania. The SAM will become briefly positive in early February before returning to neutral, the BoM said on 6 February. February rainfall is forecast to be below median for most of Australia, with February-April rainfall likely to be below median for northern Australia, including the coal-producing areas of Queensland state's Bowen basin. The Madden–Julian Oscillation (MJO) is currently over the western Pacific, where it increases the chance of above average rainfall across northeastern Australia. But most models suggest it will move eastwards, losing strength this week. Australia's wetter and milder than anticipated summer weather led to predictions of lower farm incomes for the 2023-24 year ending 30 June , and concerns about bushfires affecting key export corridors for commodities such as coal, which have not eventuated so far. Cattle supply has been impacted by the lingering effects of ex-Tropical Cyclone Kirrily, which led to localised flooding in parts of Queensland, with wet conditions across the region cutting demand for bitumen products Coal loadings were disrupted at a number of Queensland's ports and slowed chartering activity, although terminals reopened two days later. But the wetter-than-expected weather has been blamed for coal ship queues remaining long in 2024. Australian cattle slaughter rates, which were predicted to rise significantly in 2024 under El Nino conditions, may be revised down if fewer breeders are directed to processors because of more positive weather patterns. By Tom Major Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

News

Australia’s Dec coking coal exports at six-month high


02/05/24
News
02/05/24

Australia’s Dec coking coal exports at six-month high

Singapore, 5 February (Argus) — Australia's metallurgical coking coal exports in December continued to recover from October and November to a six-month high, because of firm demand and higher shipping throughput. Total coking coal exports were at 14.1mn t in December, rising by 9.3pc from 12.9mn t in November, but falling marginally by 0.8pc on the year, according to data published by the Australian Bureau of Statistics (ABS). Exports were at 12.1mn t in October and 11.2mn t in September. Hard coking coal (HCC) shipments were down by 5.5pc on the year but up 2.2pc on the month to 8.78mn t in December. HCC exports to largest buyer India declined in a time of elevated coking coal prices, but this was cushioned by a twofold increase on the month in HCC exports to South Korea. Weather disruptions continued to weigh on Australian coking coal exports, with long coal queues persisting at major ports. But collective coal shipments in December from Hay Point, Dalrymple Bay Coal Terminal, Abbot Point and Gladstone were up by 2.8pc on the year and rose by 1.7pc on the month to 17.6mn t. Total Australian exports for 2023 declined by 5.8pc on the year to 151.3mn t, but the government's commodity forecaster the Office of the Chief Economist (OCE) expects coking coal exports to increase to 174mn t in 2024-25 alongside strong global steel consumption. The Argus premium low-volatile hard coking coal price averaged $326.87/t fob Australia in December, up by 2.3pc from the November average and jumping by 23pc on the year. The Argus-assessed Australian premium low-volatile hard coking coal price was at $319/t fob Australia on 2 February. The average export price for Australian hard coking coal was $226.08/t in December, down by 1.1pc from November but rising by 8.7pc on the year. Prices were based on an Australian-US dollar exchange rate of 0.684 used by the ABS for December, up by 2.9pc from November's rate. Semi-soft and pulverised coal injection (PCI) grade shipments were at 5mn t in December, increasing by 2.9pc on the year and by 16pc on the month. Exports to largest buyer Japan declined by 10pc on the year, but rose by almost 40pc from a month earlier. The average export price for Australian semi-soft coking coal was $206.65/t in December, up by 1.7pc on the month but falling by 18pc on the year. The Argus-assessed PCI price averaged $187.19/t in December, down by 1.2pc on the month and falling by over 26pc on the year. The Argus low-volatile PCI price was at $177.35/t fob Australia on 2 February. By Cassia Teo Australia coking coal exports (mn t) Destination Dec-23 % ± vs Nov % ± vs Dec '22 Jan-Dec ± % Jan-Dec 2022 Hard coking coal China 0.57 102.07 N/A 3.20 N/A Japan 1.39 -15.73 1.24 17.85 -8.73 South Korea 1.34 103.16 -0.81 11.04 -11.12 Taiwan 0.53 46.77 -14.69 4.88 -11.01 India 2.81 -10.95 -13.02 32.43 -7.39 Vietnam 0.26 -28.17 -58.67 4.88 -23.05 Total 8.78 2.16 -5.51 99.63 -6.31 Semi-soft and PCI coking coal China 0.34 41.52 N/A 1.49 N/A Japan 1.66 39.72 -10.18 18.34 -6.42 South Korea 1.02 13.06 -7.24 8.94 -11.35 Taiwan 0.45 67.38 57.32 3.64 -9.33 India 0.75 -0.51 -10.45 9.50 -6.02 Vietnam N/A N/A N/A 0.91 -61.02 Total 5.01 16.40 2.92 50.97 -4.26 Source: ABS, GTT Total includes all destinations not just those listed Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.