Prevailing weak demand in key metallurgical coal-buying regions such as China and India is likely to minimise the impact of rising freight costs for delivered markets as a result of the US-Iran conflict, trade sources told Argus.
Major coking coal trade flows are not directly routed through the strait of Hormuz, but the heightened geopolitical risk has pushed up bunker premiums, war-risk insurance and vessel charter rates across major dry bulk segments, lifting overall freight exposure for seaborne raw materials, market participants said.
For metallurgical coal, freight makes up a significant share of delivered costs to India and northeast Asia. "The rise in freight rates could be a slow and tense one, or a scramble to cover charterers' cargoes," a freight analyst told Argus.
US east coast and US Gulf coast cargoes are particularly sensitive to Atlantic basin freight swings, while Australian cargoes to India may also see upward adjustments if bunker fuel costs continue rising. Single port discharge from Australia to east coast India of around $16-17/t prior to the US-Iran conflict could be in the region of $19-20/t now, trade sources estimated.
But weak underlying metallurgical coal demand in northeast and south Asia could negate the higher freight cost.
"There's no use worrying about rising freight rates if there is little-to-no Australia spot coking coal demand [in China]," a Chinese steelmaker said. China relies mainly on its domestic output, Mongolian and Russian coal for the majority of its steelmaking needs.
Another Chinese steelmaker echoed this sentiment, saying the Chinese spot coking coal market has not shown a clear reaction yet. Spot coking coal prices in the main producing areas and seaborne offers at portside markets have continued to decline since last week, and the Dalian Exchange has yet to show any meaningful rebound, the source added.
Some Indian end-users told Argus that they are sceptical about any outright rally on delivered coking coal prices as current supply has outpaced demand, and buyers appear generally passive as they wait for more clarity on demand signals and price direction.
"Freight costs may go up [as a result of the US-Iran tensions], but thermal coal, natural gas and crude oil will be the most affected. The coking coal trend will be stable-to-downwards," an Indian buyer said on Monday.
Argus assessed the fob Australia premium hard coking coal price at $219.05/t fob on Monday, down by $16.60/t from the previous close. The lower price was due to a premium mid-volatile trade that closed at $219/t fob before the 5:30pm (Singapore) cut-off time.
In the broader coal segment, trade sources said they envisage that coal usage could benefit from substitution mechanics rather than direct war exposure.
"If LNG delivered costs rise due to insurance and routing risk, then the gas-to-coal switching probability increases. Chinese domestic coal supply remains adequate, preventing runaway import demand, but coal's optionality improves as gas volatility increases," an international trading firm said.
