Viewpoint: US met coal miners expect more upside
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.
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Japan's trading firms see metals prices cutting profits
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Tokyo, 2 May (Argus) — Major Japanese trading houses are expecting lower profits from their metals businesses during the April 2024-March 2025 fiscal year, mostly because of lower prices of commodities such as iron ore and coking coal . Japanese trading house Mitsui forecast profits for its metal and natural resource business falling by 14pc on the year to ¥290bn ($1.87bn) during 2024-25, primarily because of lower iron ore prices. Mitsui plans to cut iron ore output by 0.3pc on the year to 60.9mn t at its mining projects where the company owns production ri ghts or a production stake during 2024-25 . This includes the joint venture project Robe River in Australia with Australian iron ore producer Rio Tinto. Japanese trading house Sojitz also expects profits from its metal and natural resource business to decline to ¥35bn, down by 20pc on the year, mostly because of a bearish coking coal market. The company said its overall coal business can cut production costs during 2024-25, partly because it plans larger-scale output at the Gregory Crinum coking coal mine in Australia, without disclosing further details. But Sojitz said it cannot generate higher profits because of lower coking coal prices. The trading house expects the average coking coal price to fall to $230/t during 2024-25, according to the company's chief financial officer Makoto Shibuya, down by $57/t from a year earlier. The company reiterated that the price is not necessarily their selling price. Sumitomo expects profits from its natural resource business would remain flat at ¥72bn on the year, mostly as its nickel production in Madagascar recovers from the output cuts in 2023 , with an aim to produce 19,000t of nickel during 2024-25, up by 9.8pc on the year. A rebound in nickel production could offset possible losses from coal and coking coal prices falling to $266/t and $133/t respectively in the ordinary market, down by $21 and $9, according to the trading house. Sumitomo plans to increase coking coal production by 9.1pc to 1.2mn t but reduce coal output by 4.8pc to 4mn t during 2024-25. By Yusuke Maekawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US southbound barge demand falls off earlier than usual
US southbound barge demand falls off earlier than usual
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New US rule may let some shippers swap railroads
New US rule may let some shippers swap railroads
Washington, 30 April (Argus) — US rail regulators today issued a final rule designed to help customers switch railroads in cases of poor rail service, but it is already drawing mixed reviews. Reciprocal switching, which allows freight shippers or receivers captive to a single railroad to access to an alternate carrier, has been allowed under US Surface Transportation Board (STB) rules. But shippers had not used existing STB rules to petition for reciprocal switching in 35 years, prompting regulators to revise rules to encourage shippers to pursue switching while helping resolve service problems. "The rule adopted today has broken new ground in the effort to provide competitive options in an extraordinarily consolidated rail industry," said outgoing STB chairman Martin Oberman. The five-person board unanimously approved a rule that would allow the board to order a reciprocal switching agreement if a facility's rail service falls below specified levels. Orders would be for 3-5 years. "Given the repeated episodes of severe service deterioration in recent years, and the continuing impediments to robust and consistent rail service despite the recent improvements accomplished by Class I carriers, the board has chosen to focus on making reciprocal switching available to shippers who have suffered service problems over an extended period of time," Oberman said today. STB commissioner Robert Primus voted to approve the rule, but also said it did not go far enough. The rule adopted today is "unlikely to accomplish what the board set out to do" since it does not cover freight moving under contract, he said. "I am voting for the final rule because something is better than nothing," Primus said. But he said the rule also does nothing to address competition in the rail industry. The Association of American Railroads (AAR) is reviewing the 154-page final rule, but carriers have been historically opposed to reciprocal switching proposals. "Railroads have been clear about the risks of expanded switching and the resulting slippery slope toward unjustified market intervention," AAR said. But the trade group was pleased that STB rejected "previous proposals that amounted to open access," which is a broad term for proposals that call for railroads to allow other carriers to operate over their tracks. The American Short Line and Regional Railroad Association declined to comment but has indicated it does not expect the rule to have an appreciable impact on shortline traffic, service or operations. Today's rule has drawn mixed reactions from some shipper groups. The National Industrial Transportation League (NITL), which filed its own reciprocal switching proposal in 2011, said it was encouraged by the collection of service metrics required under the rule. But "it is disheartened by its narrow scope as it does not appear to apply to the vast majority of freight rail traffic that moves under contracts or is subject to commodity exemptions," said NITL executive director Nancy O'Liddy, noting it was a departure from the group's original petition which sought switching as a way to facilitate railroad economic competitiveness. The Chlorine Institute said, in its initial analysis, that it does not "see significant benefit for our shipper members since it excludes contract traffic which covers the vast majority of chlorine and other relevant chemical shipments." By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Barge delays at Algiers lock near New Orleans
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