US Gulf coast petroleum coke's discount to a number of coal origins has narrowed in January on a weakened coal market, with European-delivered coal prices dropping by 10pc so far this month to the lowest in nearly a year.
On a delivered Amsterdam-Rotterdam-Antwerp (ARA) basis, 6.5pc sulphur coke rose to 65pc of cif ARA NAR 6,000kcal/kg coal on a heat-adjusted basis, as of the last coke assessment on 4 January. But European delivered coal prices kept falling this week, reaching $168.19/t by 9 January, which would make the latest coke price 73pc of coal, or a 27pc discount. In comparison, the delivered ARA coke price was 29pc of the cost of ARA coal on 24 August, or a 71pc discount.
The shrunken discount is still larger than the minimum discount of around 20pc that buyers typically seek for coke in comparison with coal, because of factors like its higher sulphur content and more complicated logistics and trading. This includes an adjustment for coke's higher heat content of around 7,500 kcal/kg. But the recent steep drops in coal prices while coke has remained steady or even climbed has made buyers wary of turning to new coke deals.
High-sulphur coke's discount has also narrowed significantly in India recently. The last assessment for cfr India 6.5pc sulphur coke was $173.50/t, putting it at 70pc of the cost of delivered South African 6,000kcal/kg coal on a heat-adjusted basis. This compares with 35pc on 24 August.
Coke's discount has nearly evaporated compared with NAR 5,500 kcal/kg South African coal. As of 2 January, cfr India 6.5pc sulphur coke was at $5.67/mn Btu, only 47¢/mn Btu less than 5,500 kcal/kg South African coal at $6.14/mn Btu, or 92pc of the cost of coal. This was the smallest discount since the week of 10 January 2022. When factoring in taxes and inland delivery costs, this coal was at a 39¢/mn Btu discount to coke, at $7.61/mn Btu compared with coke's $8.00/mn Btu, the first time 5,500 kcal/kg South African coal has been at a discount to coke since 11 July, according to Argus calculations. This compares with landed and taxed costs of $13.40/mn Btu for 5,500 kcal/kg South African coal and $7.59/mn Btu for coke during the week of 29 August, when coke's discount to these coals was at its most recent peak.
Buyers in Turkey have been particularly hesitant to book coke cargoes in recent weeks as Russian-origin coal is available with a short delivery period and in smaller parcels that tie up less capital, and also because the coal's premium to delivered mid-sulphur coke has narrowed further. Turkish buyers have lowered bids for Russian coal recently as Morocco has withdrawn from Russian purchases since December, leaving Turkey as the only remaining consumer in the west.
Turkish buyers had previously increased coke purchases from the US after discounts to the Argus Turkey supra plus 6,000kcal/kg coal assessment widened to more than 20pc in late August, leading to an increase in coke imports in October. But by November coke purchases were already dropping off, as coke discounts to the Turkey supra plus 6,000kcal/kg coal assessment, which mainly includes Russian coal, swiftly narrowed to just 4pc as of 26 October. The discount was similarly narrow on 23 November and was still at only 10pc as of the last assessment on 4 January, as Russian coal remains under pressure and coke prices remain relatively elevated because of limited mid-sulphur coke availability from the US.
In Europe and the Mediterranean, the biggest pressure on coal markets is coming from warm weather in Europe, lowering natural gas prices. In Asia-Pacific, limited demand from China ahead of the lunar new year holidays may lead to further reductions in coke and coal prices, as well as the softening of restrictions against Australian coal in China.
China is understood to be moving to soften its informal ban on imports of Australian coal, potentially restarting trade flows for the first time in over two years. The government is said to be considering lifting the ban only for major coal importers — such as power generators and a steel producer — meaning this may not extend to most companies that also use coke. If enacted, Chinese buyers will likely focus on low and mid-CV coal, which is significantly discounted to Australian NAR 6,000 kcal/kg coal and even to Russian NAR 5,500 kcal/kg.
But an increase in overall coal availability before the start of the lunar new year holidays in China may lead to a softening of NAR 5,000-5,500 kcal/kg coal prices delivered to the country and elsewhere in the region, as well as putting further pressure on Russian coal producers.
Russian coal producers are making overtures to Indian coal buyers as Chinese coal demand has weakened recently, one market participant said. The producers say they can offer rates that will beat coke prices, with a cement maker bidding $135/t cfr India in response. Factoring in just the lower heat content for Russian NAR 6,000 kcal/kg coal and not the higher tax rate for coke, Russian coal would be at parity with 7,500 kcal/kg coke at a delivered cost of around $140/t.
