By Aditya Sinha

The world now needs to make more steel to help build almost everything. And to this day, there still isn’t any better industrial method for producing steel in mass quantities without using coking coal. Second only after iron ore, it is the most vital ingredient required in the steel-making process – via the integrated blast furnace route.

At present, around 70% of global steel production relies directly upon inputs of metallurgical coke – for combustion in the blast furnaces – which is made by carburising coking coal, also called met coal.

Indian steel manufacturers are no exception to the use of this modern commercial process – apt for making steel on a massive scale – as the majority of production is done through giant blast furnaces that swallow large volumes of raw materials, namely iron ore and coking coal.

However, particularly in regard to availability of indigenous coking coal, the country’s total coal reserves of nearly 260 billion tons (BT) prove insufficient to meet its own growing demand, notwithstanding ambitious governmental targets set toward achieving self-sufficiency in the commodity from domestic resources.

As yet, India is importing well over three-fourth of its coking coal demand from key originating countries like Australia, Canada and the US.

This dependency has consistently increased in the last three years, while India became the world’s second-largest destination for seaborne coking coal after China, constituting approximately 13% of global demand in the spot market.

Meanwhile, the country has by now imported about 33 million tonnes (MnT) of coking coal till July this year, which is 8% higher as compared to imports of the same during this seven-month period last year.

Coking coal import prices have thus gained prominence as one of the key determinants for the steel sector’s profitability in India.

Coking coal export pricing has been extremely unstable over the recent past in the midst of inherent fluctuations of demand-supply fundamentals involved in the international commodity markets.

Source:Steel360 Research

Coking Coal Price Correction Continues

Australian coking coal prices have continued to plunge throughout the past three months due to persistent weakness in global demand, primarily across major Asia-Pacific markets in China and India among others.

There has been further weakness in the seaborne metallurgical coal market driven by a declining steel market in Europe.

In a desperate attempt to attract buying interest, the Australian producers and sellers have resorted to reducing their offer prices in search of demand.

FOB prices for the premium low-volatile (PLV) grade of Australian hard coking coal (HCC) have fallen by roughly 20% since the beginning of the year, from USD200 a ton at the start of 2019.

Widely recognised as a globally-relevant benchmark index for tracking the spot price of physical prime-quality hard coking coal, Australian PLV met coal prices have been steadily dropping since mid-May; to hit a one-year low of $191/tonne at the end of June. By August, prices had hit a two-year low of $160/tonne.

Falling Prices Regenerate Chinese Demand

While seaborne coking coal prices are continuing to soften, China is experiencing an unprecedented resurgence of keen buying interest for Australian coking coal, simply because CFR China delivered prices are relatively cheaper compared to domestic coals of similar specifications.

Several spot trades have been booked at current low levels, as Chinese steel producers and other end-users resumed restocking, clearly to take advantage of competitive seaborne prices for Australian met coal.

By contrast, Chinese traders have been adopting a different, albeit utmost cautious, approach towards procuring imported cargoes in light of the fresh restrictions imposed at several major seaborne coal handling ports in the north, including China’s main coking coal importing port of Jingtang located in the north-eastern Hebei province.