Firm buying interests and limited supply are likely to continue lifting fob Australia premium low-volatile (PLV) hard coking coal prices into November, with a bullish price outlook even into next year.
The Australia PLV hard coking coal price on a fob basis has risen by over $90/t or 36pc from September to $366.25/t on 13 October, while the cfr China index increased by over $50/t to $301.50/t over the same period. This marked the first time since March that these prices have crossed the $350/t mark.
Some participants anticipate that the PLV price will cross $400/t fob Australia, a level last seen in June 2022. Uncertainties regarding cargo availability is expected to keep prices firm and panic buying might ensue if supply indications remain unclear into November, a trader said.
Prices surged over the last month because of consecutive premium hard coking coal (PHCC) trades on the back of a spot supply shortage in Asia-Pacific. October-loading cargo availability was extremely tight, with only one Panamax-worth of spot cargo offered from a major producer in the market. This was a steep decline from September availability, which totalled about 555,000t worth of PHCC from the same producer.
Robust Indian demand post-monsoon have also bolstered prices, supported by strong steel production and higher steel prices. Sentiments are bullish now and market prices are expected to pick up further as buyers with requirements are still looking to purchase to maintain their production, an Indian trader said.
But most participants are still refraining from purchases, citing tight margins because of elevated fob Australia coking coal prices, suggesting that they are considering alternatives like US coal or metallurgical coke. But those trades have yet to emerge, with a sizeable price gap between suppliers and buyers.
Buyers are also looking to met coke as an alternative. "What is the point of buying coal at current prices and making coke when the arbitrage between coal and imported coke has almost reduced to zero?" an Indian coke producer asked. Another buyer suggested that he would "go down to [using] 5-10pc of PHCC and increase semihard, US coals or even buy coke to manage costs". The Argus 62 CSR met coke index was pegged at $330/t fob China, while the 65 CSR index was at $346.25/t fob China.
Bullish price outlook for 2024
The high coking coal prices are expected to continue through the 2023-2024 fiscal year because of robust demand and lower supply volume. Demand in major consumer regions, mainly India and Indonesia, is anticipated to remain firm because of strong Indian steel output and a ramp-up in Indonesian coke capacity.
India has a target to achieve 300mn t/yr of steel output by 2030. The country produced 11.4mn t of crude steel in September, up by 17pc on the year. Strong infrastructure and construction demand supported the domestic steel market, as projects were due ahead of the general election next year.
"India has around 50mn t of coke making capacity and is projected to increase to 85mn t by 2030," a trader said. "This would mean around 3mn t/ yr ramp-up in capacity, which in turn requires 4mn-5mn t/ yr of coking coal and where are we going to find this [volume]?" the trader asked, adding that coking coal prices would remain buoyant since supply is structurally tight.
Indonesia is on track to become a major coke supplier, with at least 18.8mn t of capacity to be introduced by 2024. There are four coke plants in the Morowali Industrial Park that have started production, with the four plants' projected combined output at around 5mn t this year. Indonesia imported 5.07mn t of coking coal in January-July, with Australian shipments accounting for 59pc of the imports. Coking coal demand from Indonesia is expected to increase as the remaining coke plants progressively start production.
Several major producers in Australia have reduced their production guidance for the 2023-2024 fiscal year, limiting the increase in supply volume that can meet the burgeoning demand.
Australian resources firm BHP and South32 each planned to cut their production guidance, but the decrease in volume is anticipated to be partially offset by higher output from Stanmore and Whitehaven.
