US met coal price relativities shift amid global slump
US high-volatile type A (HVA) coking coal's premium to other US grades has narrowed in recent weeks, as price relativities reconfigure amid the global price slump.
The Argus fob Hampton Roads index for HVA is at $157/t today, at a premium of just 50¢/t to the fob Hampton Roads low-vol index — in from a $16.70/t premium at the start of July. Relative to other key indexes, HVA is today at a premium of $15/t to HVB and a discount of just 40¢/t to the daily fob Australia index for premium hard low-volatile coking coal.
To put these figures in context, HVA's premium to US low-vols averaged $10.09/t last year and the premium to HVB averaged $44/t, according to Argus assessments. This year, HVA's premium to US low-vol has averaged $14.07/t, and the premium to HVB has averaged $35.46/t (see chart).
Many market participants see the narrowing of the HVA premium as long overdue. As yet, it remains slightly higher than US low-vol indexes, but this could be short-lived. One major US producer has for months been expecting HVA to slip back below US low-vol indexes. The Argus fob Hampton Roads index was previously at a discount to the US low-vol index for a sustained period in the fourth quarter of 2017.
HVA's wide premium to HVB has been a point of contention, with some European steelmakers estimating that their own calculated value-in-use of HVA over HVB would theoretically be no more than $10/t — albeit with scope for variation depending on the exact grades and mill.
US producers have attributed HVA's wide premium to its limited availability and the way in which it is sold — usually more locked up in term contracts than other grades because of high demand and limited production, rendering spot supply tight.
But not all participants are convinced of the fundamentals underlying HVA's wide premium, with one US producer having held back from developing a new HVA mine for months because of uncertainty about whether prices for this grade were sustainable, a source at the firm said.
Atlantic coking coal pricing has been extremely unstable in recent weeks, as a particularly slow summer period combines with sharp and continuing declines in the Asia-Pacific market. The Argus daily fob Australia index for premium hard low-volatile coking coal is at $157.40/t today, down from $198/t fob at the start of 2019.
US price indications have ranged widely in recent weeks, on a shortage of firm trading activity. "It will be interesting to see how Atlantic prices stabilise once people return from holidays," a trader said, adding that "it's very difficult to get a firm idea of price right now, if no one's needing to buy".
Another source noted that HVB has been on offer lately at around the mid-$140s fob Hampton Roads, but said no buyer would be likely to take it because of seasonality and a preference to wait and see how much further prices will drop.
That said, one European market participant said US coking coal prices might even be poised for a slight upward correction once buyers return, noting that the caution engendered by low demand might have obscured a lack of availability for key US brands. "People have been very focused on the lack of demand, but that is partly due to the season and there is a limit to how long some buyers can go without seeking a top-up, at which point it might become more apparent that there really isn't much available at the moment," he said.
A producer of HVB said it is sold out — except for the usual marginal tonnes of off-spec material — and will next have spot cargoes on offer in the fourth quarter.
More broadly, some supply-side factors have yet to be fully quantified — in particular the production outlook for Blackjewel and Cambrian Coal assets after their chapter 11 filings.
While most US export tonnage for 2019 has now been committed under term contracts, the rapid shift towards index use in the past two years means producers cannot avoid spot price volatility, and some are now voicing concerns about how low seaborne prices are falling.
As yet, no major red flags are being raised, with the recent trio of chapter 11 filings attributed to company-specific issues rather than market factors, and some mills said they do not want to drive prices down so far as to put their coal suppliers into financial difficulties.
US coking coal prices are still comfortably above the lows of 2015-16 that triggered a wave of bankruptcies. The Argus HVA index hit a low of $75.85/t fob Hampton Roads in November 2015, at which point HVB was at $71.50/t fob and the US low-vol index at $75/t fob.
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Q&A: Ramaco adding production, sees market growth
Q&A: Ramaco adding production, sees market growth
New York, 16 April (Argus) — Randall Atkins is a founder and chief executive of metallurgical coal producer Ramaco Resources. He also has been involved in energy-related investment and financing activity for over 40 years. In this Q&A, edited for length and clarity, he discusses effects from the Francis Scott Key bridge collapse, his outlook for coal and the company's research projects. What effect has the Key bridge collapse and Port of Baltimore closing had on Ramaco and the US coal industry in general? Like most things of that tragic nature, it is going to take longer than everyone expects to actually solve the problem. I think where it is going to impact producers probably more is on the rails. There will be a need for...producers to rearrange stockpiles and to rearrange where they are going to try and ship, even at reduced levels. Particularly, CSX is going to have an immense logistical complexity to deal with over the near-term. We do not ship from Baltimore. We have not seen any problems, knock on wood, with our rail shipments post the incident. What are your long-term projections for metallurgical coal given expectations that low-volatile coal reserves will shrink in coming decades and the steel industry could be in oversupply? Low vol coal has traditionally been the highest priced coal and the dearest, if you will. High vol A coal has over the last few years grown in importance, and to the extent that there is any new increase in production in the US, it's high vol. What we perceive is that there is going to be a crowding in the high vol space. As a result, our increase in production is primarily in low vol. As far as the demand side is concerned, we do not believe that blast furnace steel demand is going to decline anytime soon. There's a lot of noise from the green community that hydrogen is going to replace coal in blast furnaces. We took some advice on that from the IEA…and when that question was posed (to IEA), the answer that was given was it would take about $1.5 trillion to build a pilot plant using hydrogen by 2035 and probably about another equal or greater sum to build a commercial facility by 2040. So, I don't lose a lot of sleep on the demand for coal for blast furnaces. What I do see shifting, however, is the US has held relatively steady at about 20mn short tons (18.1mn metric tonnes) of met coal demand over the last 10 to 15 years. The growth is clearly overseas, and the growth is clearly at the moment in Asia. When we started back in 2017, and 2018 was really our first year of production, we predominantly sold coal domestically; I think 80pc of our coal went to US steel mills. Now that is almost reversed. We're going to sell probably this year, 70pc overseas, and about a third or less domestically. With Europe moving towards electric arc furnace technology and significant new blast furnace capacity coming online in Asia, what kind of role will the US play as a coal supplier over the coming years? It is cheaper to use a blast furnace than electric arc. And the steel that they (Asian companies) mostly require is the heavier steel for cars and buildings and things of that nature. So, they have a bias towards blast furnace capacity. The US and Europe are very developed economies that are trying to go and wean away from coal, (while) the rest of the world is aggressively moving further into coal. People will shake their heads at the cost that European and American consumers will start to have to pay for that privilege. We see market growth is still there, but it's a different kind of growth. It will be more in the Asian markets, predominantly some in Europe, some in South America and Africa. The low vol coal demand in Asia is extremely strong because while they are able to buy high vol product from Australia very inexpensively, they do not have the low vol production. They need that to blend up to get the proper mix in their blast furnaces. There is a very good future for low vol, and that is the direction we are positioning ourselves. How confident is Ramaco about securing its investments in the longer run given the emphasis on ESG? What I see is sort of a dichotomy. In the thermal coal business, there's not a lot of investment in new mining there for the obvious reason that their customer base is declining. On the met side, it is a bit shortsighted from an investment standpoint because of the composition of the ownership of met coal companies. Virtually every major metallurgical coal producer except for us went through bankruptcy and post-bankruptcy proceedings. Their board composition became essentially distressed debt investors...Their interest was not developing a long-term coal company. Strategically their vision was: "How can we most quickly get money back out of that coal company?" We are certainly the only coal company that is doubling in size. We produced a little under 4mn st last year. We will be at about 4.5mn st this year. We can maybe go higher, depending upon the market. The market is not strong right now. The other issue (for coal producers) even when they weren't doing special dividends, is they've now shifted to doing large-scale share buybacks. You are starting to see the cost curve increase for most domestic coal producers. What you haven't seen, but I think you will probably find over the next probably 18 to 24 months, is you will begin to see depletion kick in. The amount of coal that they are able to produce from their existing operation will begin to decline. 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Liberty Whyalla blast furnace down after maintenance
Liberty Whyalla blast furnace down after maintenance
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Australian new environment agency to speed up approvals
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