India's largest coal handling agency - Mjunction

coal market fundamentals
for every brand from the second quarter (July-September). At
the same time at the end of August, low volatile (LV) PCI coal
of Russian origin was set at $130 per ton fob with the reduction
of $40 (22.5 percent) from the previous quarter. Furthermore
from end August through early September, the prices of LV
PCI coal produced in Queensland Australia have been settled
one after another. LV PCI coal for the third quarter became
$147 per ton to $150 per ton fob, down $30 to $33 (16.7 percent
to 18.3 percent) from the previous quarter.
The price negotiations with the blast furnace steel
producers on Hongay anthracite of Vietnamese origin for the
third quarter of the fiscal year 2010 (October-December) was
also heard to have been completed. The contract price for the
third quarter of Hongay No.6 coal for PCI operation was set at
$150 or so, while that of the Hongay No.8 coal for sintering at
$143 per ton fob or so with price reductions of $30 plus (about
17 percent) for No.6 coal and $27 plus (about 16 percent) from
the first half of the fiscal year 2010 (April-September).
Meanwhile, as the quarterly contract prices are getting
settled, weakness is seen in certain crucial markets including
China. Market sources revealed that domestic coking coal
prices in China’s Shanxi province have become depressed
due to weak demand. Many feel that relatively high priced
coking coal price have impacted demand from coke makers.
Coke market lukewarm
The global coke market, which is clearly dominated by
China, has remained rather uneventful. As per available
information, domestic coke prices in China’s Shanxi
province have remained more-or-less stable over the past
month, despite weak demand from steel mills. Market
sources informed that first grade coke in Shanxi province
was selling for RMB 1800 to 1850 per ton ($270-277 per
ton) on October 11 including 17 percent VAT, the same
price as on September 17.
Prices of second grade coke from the province were
around RMB 1700 per ton ($255 per ton) including 17
percent VAT, up slightly by RMB 20-50 per ton ($3-8 per
ton) compared with 1,650-1,680 per ton on September 17.
Overall, the market has been impacted by the relatively
weak demand situation.
Things were no different back home during the first
half of October. During the first week of the month, coke
price hovered between $370 and $390 per ton depending
on requirement, which is almost the same or slightly on
the lower side compared to the rates prevailing around
a fortnight ago. At that time, Chinese coke was available
in India at around $400 per ton fob. Vietnamese coke was
also available at around the same rate ($400 per ton).
However, things have been improving of late. During
early second half of the month, coke (with ash content
12.5 percent) was selling at a minimum price of `20,500
per ton.
Sources informed that around October 19, prevailing price
of hard coking coal in northern China’s Shanxi province was
around RMB 1450 to 1500 per ton ($218-226 per ton) including
17 percent VAT, down by RMB 50 per ton ($8 per ton) from
RMB 1500 per ton on September 20.
As far as supply is concerned, it has been learnt that
Xstrata Coal saw its production of coking coal decline 5
percent in the third quarter 2010 from the same period a year
ago to 1.9 million tons (mt). Production of semi-soft coking
coal (Australia) was also lower in Q3 2010 to 1.5 mt from 1.7
mt in Q3 2009. Average received prices for coking coal were
however much higher than the previous year at $230.40 per
ton in Q3 2010 compared to $150.90 per ton in Q3 2009. Semisoft
prices were also much higher in Q3 2010 at $149 per ton
from $83.30 per ton in Q3 2009.
Russian raw materials producer Evraz also saw its
production drop. Evraz’s coking coal production fell 20.8
percent to 1524 mt in Q3 2010 from 1923 mt in Q3 2009. This
lower figure was the result of an explosion at the Raspadskaya
mine on May 9.
However, things may get tougher in the spot market on
back of supply problem from Queensland. Heavy rains in
central Queensland have caused coking coal spot prices
to jump $10 per ton and major producers to declare force
majeure on coal exports during middle of October. As a result,
Wesfarmers has reduced its 2010-11 coking coal production
guidance by around 3,00,000 tons to 6.2 to 6.7 mt because of
bad weather. Anglo American Metallurgical Coal said it was
unable to confirm that it issued a force majeure notice because
of disruptions to its Capcoal German Creek and Foxleigh
mines in Queensland. Although the impact on supply is yet to
be fully understood, it is hoped that supply would get normal
shortly. Heavy rains have also affected coking coal production
in Indonesia.
However, long term expectation remains intact. Many
analysts feel that the coking coal market is for continued
supply tightness until 2013. The proportion of coking coal that
China imports is likely to grow until 2013 as it will be unable
to meet its own additional demand for coking coal over the
period, even based on a “relatively pessimistic” forecast of
slowing steel production over the next few years.
Speaking at a recently held Dry Bulk Shipping Market
Outlook Conference, director of commodities research at
Deutsche Bank, Daniel Brebner, said that China’s attempts to
increase its domestic coking coal production, as well as imports
from neighbouring Mongolia, will suffer from infrastructure
constraints. The construction of an additional railroad to carry
coking coal and thermal coal from Inner Mongolia and Shanxi
to the northern port of Qinhuangdao will increase capacity
when it is completed in 2012, Brebner notes. However, he
believes that bottlenecks will not be eliminated.
Demand from Brazil and India, which are nearly wholly
dependent on imports of coking coal, will continue to rise over
the period, placing upward pressure on prices. On the supply
side, the major coking coal producers are unlikely to in1crease
production significantly over the next two years.
COAL INSIGHTS 24 October 2010