Rapid coal rise narrows petroleum coke premium

Coal prices have risen at a much faster rate than petroleum coke prices in recent months, eroding coal's competitive edge in some key demand hubs.

Argus' cif Amsterdam-Rotterdam-Antwerp (ARA) 6,000kcal/kg coal assessment rose to $107/t today, a nearly 10-year high. This is a 55pc increase since 1 April. Similar quality coal on an fob Black Sea basis was assessed at $97.81/t on 4 June, a 40pc increase over the same period. The fob Puerto Bolivar Colombian 6,000 kcal/kg coal price has increased by nearly 28pc since the start of May.

In comparison, the US Gulf 6.5pc sulphur and 4.5pc sulphur weekly coke prices increased by just 12pc and 13pc since the beginning of April, respectively. On a delivered basis, the delivered ARA 6.5pc coke price rose by 17pc and the cfr Turkey coke 4.5pc sulphur price increased by only 10pc over that period.

Coal's more rapid rise could bring coke back to a discount on an ARA basis for the first time since early July 2020. As of the last assessment on 2 June, the Argus calculated price for 6.5pc sulphur petroleum coke on a del ARA basis was $122.50/t while 4.5pc sulphur was $127/t. Coke has roughly 25pc higher heat content than 6,000kcal/kg coal, which implies coke will hold a competitive edge against coal into the ARA region as long as its price remains below $133.75/t. As recently as 10 March, del ARA 6.5pc coke was 133pc of the cost of coal, while 4.5pc sulphur coke on an ARA basis was 141pc.

Mid-sulphur coke in Turkey was still at a slight premium to coal as of the last assessment. But as recently as 17 March, cfr Turkey 4.5pc sulphur coke was 122pc of the cost of coal, when adjusted for the two fuels' differing heat content. This premium could narrow further or also switch to a discount in the coming days.

The sudden increase in coal markets is presenting a difficult choice for buyers who had expected coke prices to begin to fall in the second half of the year as US Gulf coke output rises on higher transport fuel demand and strong coker margins. Coke instead continues to rise to new heights, with the US Gulf 6.5pc sulphur price reaching $95/t on 2 June, nearly $10/t above the previous record high in weekly assessments going back to 2013.

The coke price is now testing the all-time highs reached in 2011, when Argus only assessed on a monthly basis. Between January and July 2011, the US 6.5pc sulphur, 40 HGI price ranged from $95-$112/t. These are the highest levels in pricing going back to 2001. The market is now wondering if the coke price could reach or exceed these levels in the next few months, if coal prices continue to provide such strong support.

But even though spot prices for coke may fall below coal this week, it is difficult for most buyers to make a purchase on a fixed price basis. Most coke supply remains in the hands of traders with term contracts who largely prefer to sell on an index-linked basis with large premiums tacked on, making the final cost difficult to budget.

But besides costs alone, coke could be more easily available than coal in the near term, despite how tight coke supply has been. Labour unrest in Colombia has blocked shipments there, with some supply uncertainty lingering. Russian coal supply is also limited. This may draw more buyers back into the coke market.

"There is no coal at all. That is why people are looking at coke," one trader said. "Coal might be cheaper on paper, but there is a shortage."

By Lauren Masterson

Coal vs coke on ARA basis $/t

ARA, Turkey coke % of coal, heat adjusted %