Viewpoint: US met coal miners bullish for 2022

US coking coal miners expect the fourth-quarter slump in cfr China prices to pass as soon as early 2022, with the market still backed by supply tightness and steady seaborne demand outside of China.

The Argus premium hard coking coal cfr China assessment rose to a 2021 high of $613.15/t in late October, a year after China imposed an informal ban on Australian coal. The limited availability of comparable US and Canadian high CSR low-volatile coking coal meant that Chinese buyers had to pay a premium for these coals or adjust their coal mix.

A combination of domestic supply tightness from flooding and mine inspections in October, along with disruptions to Mongolian truck supplies of coking coal due to a Covid-19 resurgence, drove prices to new record highs. But at the end of the month, when the Chinese government intervened to discharge pre-ban Australian coal, including up to 6mn t of coking coal and to increase domestic coal supplies, prices fell sharply. The cfr China price for premium hard coking has stayed below $350/t cfr China since the second half of December.

The sharp price drop has sidelined US miners and suppliers offering into China in recent weeks. But margins for coal producers remain attractive and will continue to draw US coals to China. Outside of 2021, only prices as far back as April 2011 come close to the $348.65/t cfr China assessed for premium hard coking coal on 24 December.

Upward price pressure is growing as the year draws to a close, particularly with buyers outside of China actively seeking alternatives to Australian coking coal because of La Nina weather disruptions and a severe thunderstorm warning that had been issued for the Christmas weekend in many parts of Queensland. Chinese buyers are largely bypassing the seaborne market for stockpiling before the lunar new year, as they appear well-supplied by discharging pre-ban Australian coal and domestic coal amid steel production curbs and the upcoming Winter Olympics in China. But government measures to stimulate and stabilise the Chinese economy in 2022 still bodes well for steel production after the first quarter. Expectations are for Chinese buyers to enter the seaborne market as soon as early January to secure Atlantic coal supplies for arrival in April next year.

Near-term price pressures remain, with several US miners across the low volatile and high-volatile coal segments already booked out for the first half of the next quarter, with term buyers requesting to move forward laycans or pro-rata volumes. Supply pressure in the US is further exacerbated by the poor performance of eastern US railroad Norfolk Southern, which miners are blaming for loading delays.

After tracking the China cfr price for much of this year, offers and price indications in the US low-volatile coal segment are increasingly pegged to the fob Australian price instead. Notional indications for Blue Creek 7 stand at around $345-355/t fob Mobile, in line with the Argus fob Australian premium low-volatile coking coal price at $347.35/t today. The recent closure of the Oak Grove low-volatile coking coal mine in Alabama, US will no doubt add to upward pressure on prices, depending on the length of the closure.

By Siew Hua Seah