Coking Coal Prices Set to Rise After Q3/Q4 Softening
Coal Prices
Coking coal prices have been relatively steady these last few months but a number of factors are likely to converge to force a small rise in integrated steel producers coking coal costs early next year.
Reuters covered the impact of the weak dollar on coal producers profit margins and the upward pressure this is putting on prices.
With the exception of Indonesia, the top five coal exporting countries count the cost of mining and moving coal to ports in local currencies but sell coal in U.S. dollars per ton. As the dollar has weakened relative to the Australian dollar, South African Rand etc coal producers revenues in local currencies have come under pressure.
China is by far the world’s largest consumer of coking coal but because it is also a significant producer it is (surprisingly) not the largest sea borne importer. That distinction goes to Japan where coking coal imports are expected to bounce back next year to 56m tons, just short of the 2007 peak of 57m tons. This year South Korea and India will swap places for the honors for second place tying at about 24 m tons each but demand in India is rising much faster and according to Credit Suisse and the World Coal Institute, Indian consumption is likely to hit 38mt by 2013.
BHP Billiton and Japanese steel mills have agreed to a Q4 price of US$209/ton, representing a 7% reduction from Q3 while Australian coking coal prices have dropped some 16% since May on a like for like FOB basis on weaker demand. However only part of the reduction is due to the steel market itself. Chinese steel production got ahead of itself this summer and with considerable overstocking went through a period of inventory run down with steel producers trimming production.
HSBC expects that process to have worked its way through by Q4 and hence is looking for an increase in raw material demand again. Independent of that process is the rise of a new supply source to China in neighboring Mongolia. From almost zero 18 months ago, Mongolia has become a significant coking coal supplier to China rising 291% year over year to 8.48mt in the Jan-Aug 2010 period. Source: agmetalminer.com
Chinese September coking coal import volumes hit eight-month high
Oct 27, 2010. September imports of coking coal into China hit their highest level in terms of volumes since January 2010, with 4.17 million mt imported, up 7.5% on August figures but 2.7% less than in September 2009, according to China customs data seen on Tuesday.
After lagging behind Mongolia for the last three months, Australia regained its position as the largest seller of the steelmaking raw material into China, with a total of 1.76 million mt. This was more than double the volumes imported in August, but 38.8% less than in September 2009.
Mongolian coking coal imports totaled 1.51 million mt, down 3.6% month on month, but 201% up compared to September 2009.
Chinese imports of US and Canadian coking coal decreased by 70% and 58%, respectively, on the month to 129,579 mt and 145,655 mt.
Since the start of 2010, 33.5 million mt of coking coal has been imported into China.
In terms of value, Canadian imports were valued at an average of 227/mt CIF China in September, Australian imports averaged $204/mt, US imports $191/mt, Russian $163/mt and Mongolian imports $67/mt. Source: chinamining.org
Coke is the solid carbonaceous material derived from destructive distillation of low-ash, low-sulfur bituminous coal. Cokes from coal are grey, hard, and porous.
The greater the volatile matter in coal, the more by-product can be produced, but too low or too high a level of volatile matter in the coal results in inferior coke produced in respect to coke quality properties. It is generally considered that levels of 26-29 % of volatile matter in the coal blend is good for coking purposes. Thus different types of coal are proportionally blended to reach acceptable levels of volatility before the coking process begins.
The Chinese first used coke for heating and cooking no later than the ninth century AD. By the first decades of the eleventh century, Chinese ironworkers in the Yellow River valley began to fuel their furnaces with coke, solving their fuel problem in that tree-sparse region.
The most important properties of coke are ash and sulfur content, which are linearly dependent on the coal used for production. Coke with less ash and sulfur content is highly priced on the market.
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The use of sophisticated software systems for coal mining that is mostly burnt for power generation and steel production and adds to the greenhouse effect is valid for western countries who may allocate resources and funds to alternative and more greener sources of power. Some of the alternatives may be “safer” than the traditional mines. Unfortunately, coal market news show developing economies are more likely to increase their use of thermal coal & metallurgical coal in coming years because of its affordability and to meet increasing demands for electricity and steel. Whether they will embrace and utilize sophisticated software systems that no doubt add to the cost of production is yet to be seen.