Coking coal’s supply-driven price rally will likely abate by mid-2017 as production issues and transport hurdles in Australia and China ease, Citi Research analysts said.
“Short-term supply disruptions in China have been resolved and in Australia should be back to normal in the short term,” Citi analysts said Thursday in a note, adding: “Mine-specific incidents in Australia are expected to be fully resolved by early next year”.
In July, heavy rain and railway outages disrupted coal production and transport in Shanxi, China’s biggest met coal-producing region and, as a result, coastal steel plants became active in the spot market.
Meanwhile, Australian supply was affected by Glencore railway shutdowns as well as mine-specific issues at Anglo, South 32 mines.
Moreover, Citi analysts said the recent uptick in end-user demand was temporary and mostly seasonal.
This month’s price surge may also have been due to restocking on the back of low inventory levels in Chinese and Indian steel mills.
Citi said Chinese steel mills’ seasonal restocking was likely to be over by September/October, while “Indian demand could remain strong now but should normalize by the end of October”.
Spot prices for Premium Low Vol coking coal FOB Australia, which rose 50% to $212/mt between September 1 and September 16, have since oscillated between $211.75/mt and $212.50/mt, according to S&P Global Platts data.
However, spot prices for second-tier hard coking coal have risen more strongly this week, gaining $4.50/mt to $195/mt CFR China on Wednesday, a 42% rise since September 1, Platts data showed.
In the paper market, the Q4 2016 contract of Australian Coking Coal (Platts) Low Vol Futures traded Thursday at $192.50/mt, while Q1 2017 traded at $165/mt and Q2 2017 at $150/mt.
According to Citi analysts, prices could decline back to normal in 3-4 months after supply normalized, albeit in a market where any change in Chinese policy is now quickly felt globally.