Column: Coking coal price surge backed by demand as supply woes add froth

Coal is unloaded onto large piles at the Ulan Coal mines near the central New South Wales rural town of Mudgee, Australia
Coal is unloaded onto large piles at the Ulan Coal mines near the central New South Wales rural town of Mudgee in Australia, March 8, 2018. REUTERS/David Gray/File Photo

LAUNCESTON, Australia, Feb 7 (Reuters) - The price of coking coal has surged to a seven-month high, but the question is whether the rally in the fuel used to make steel is down to an improving economic outlook, or whether supply issues in top exporter Australia are to blame.

The price of Singapore-traded contracts linked to the spot price of Australian coking coal ended at $345.67 a tonne on Monday, just below the $348.00 reached on Feb. 3, which was the most since July 1 last year.

The price has jumped 70.3% since the 2022 low of $203.00 a tonne, reached on Aug. 1 amid concern that the global economy was heading into a recession in the wake of the surge in energy costs sparked by Russia's invasion of Ukraine on Feb. 24.

Since that low, some optimism has crept back into the market that the global economy will avoid a deep recession, and that China, the world's largest steel producer, will roar back to life in 2023 after ending its strict zero-COVID policy, which had crimped growth.

Coking coal prices, along with those for iron ore, have rallied on the back of this optimism, with both steel raw materials recording strong gains this year.

Spot benchmark 62% iron ore for delivery to north Asia , as assessed by commodity price reporting agency Argus, ended at $124.60 a tonne on Monday, down from the almost eight-month high of $129.50 on Jan. 30, but still up 57.7% from the 2022 low of $70.00 on Oct. 31.

The question is whether there are any fundamental data to back up the recent gains in prices.

The answer is that for coking coal there appears to be both rising demand and some supply disruptions at work.

Global coking coal imports from the seaborne market rose to 24.84 million tonnes in January, the highest since July, according to data compiled by commodity analysts Kpler.

India, the top seaborne importer of coking coal, landed 6.06 million tonnes in January, largely steady from December's 6.25 million, but up from 4.98 million in January last year.

Japan, the second-biggest buyer of seaborne coking coal, imported 5.01 million tonnes in January, up from December's 3.98 million and roughly level with last January's 5.08 million.

Although China is the world's biggest coal importer, it buys mainly thermal coal from the seaborne market as it sources the majority of its coking coal from domestic mines and overland from neighbouring Mongolia.

Nonetheless, China's seaborne imports of coking coal rose to 2.54 million tonnes in January, up from December's 2.30 million and only slightly below the 2.60 million from January 2022.

Outside of Asia, Europe's imports of coking coal rose to 3.81 million tonnes in January from December's 3.55 million, according to Kpler.

The overall picture from coking coal imports is that there has been a move higher in recent months, which does provide some fundamental backing to the rally in prices.

Global coking coal imports, exports vs SGX price

AUSTRALIA SUPPLY

On the supply side, there are some signs of stress in the seaborne market, with January exports dropping sharply to 18.82 million tonnes from December's 23.92 million.

This was largely because of a slump in Australia's shipments to 11.54 million tonnes in January, down from December's 14.30 million, although it's worth noting that U.S. exports also dropped to 582,157 tonnes in January from 1.53 million in December.

Australia's shipments have been disrupted by heavy rains in the coal-mining eastern states of Queensland and New South Wales, as well as the closure of a key railway line following a collision.

The Blackwater railway to the port of Gladstone is scheduled to re-open on Feb. 9, which would be a disruption of 11 days of a line that delivers around 50 million tonnes of coal annually.

Putting together the increased imports of coking coal and the supply disruption in Australia and a picture emerges of rising demand driving prices, with supply concerns currently a likely temporary froth on top.

Editing by Jacqueline Wong

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Clyde Russell is Asia Commodities and Energy Columnist at Reuters. He has been a journalist and editor for 33 years covering everything from wars in Africa to the resources boom and its current struggles. Born in Glasgow, he has lived in Johannesburg, Sydney, Singapore and now splits his time between Tasmania and Asia. He writes about trends in commodity and energy markets, with a particular focus on China. Before becoming a financial journalist in 1996, Clyde covered civil wars in Angola, Mozambique and other African hotspots for Agence-France Presse.