Hurricane threat to US coking coal spooks Indian buyers

Indian steel producers have been exploring options in the spot market for Australian coking coal amid concerns that a hurricane approaching the US east coast could disrupt shipments.

Hurricane Florence was upgraded to a category 4 storm on 10 September and could make landfall in the US mid-Atlantic region between Virginia and South Carolina by 14 September. The storm could force US coal terminals in the Hampton Roads region to close temporarily, but it may have a bigger impact on global coking coal spot prices if rail lines to the port are flooded.

An Indian trading firm said it has already been receiving enquiries from Indian steel producers seeking potential replacements for US fourth-quarter contract volumes in the event of a force majeure on US coking coal exports.

"The hurricane could be one reason for the higher prices we have been seeing in spot market sales to India. The market is moving higher just on demand, so mills with requirements will want to act before there is any supply crunch," an Indian trader said.

India imported 1.4mn t of US coking coal during April-July this year compared with 10.1mn t from Australia and out of total Indian imports of 14.1mn t for the first four months of the 2018-19 Indian fiscal year, according to data from e-commerce company Mjunction.

Indian steel mills may have already bolstered the fob Australia market with purchases of first-tier spot cargoes this week. Deals on an fob Australia basis were at $196.50/t for an October-loading Panamax of 68 CSR blended first-tier coking coal and $202/t fob Australia for an October premium low-volatile cargo soon after Florence regained major hurricane status on 10 September and meteorologists tracked its path to the US east coast. Similar cargoes traded in a $189-190/t fob Australia range at the end of last week.

Indian mills would have preferred to adopt a more wait-and-see stance regarding the hurricane, but may have been forced to act by logistical issues and port queues that have delayed Australian export shipments and limited available spot cargoes.

Firm steel profit margins and even higher prices for downstream metallurgical coke have kept coking coal demand strong across Asia-Pacific and particularly in India, where consolidation in the steel industry this year has boosted production rates and mills and driven coking coal import volumes higher.

"Now that the Indian monsoon season is ending and construction activity is resuming, the trend in coking coal prices should continue upward through the fourth quarter," an Indian supplier of US coking coal said. "We don't yet know the path of this storm, but if it hits US supply we should expect an even bigger reaction."

Asia-Pacific steel producers are expected to further increase restocking activity in November to meet their requirements in next year's first quarter that coincides with the cyclone season for Australia's east coast.