Analysis: Itochu invests in $450 million NCR coking coal mine, boosts US high-vol A supply

London — A new US high-vol A coking coal mine project in West Virginia, close to Arch Coal's flagship Leer mine, has found backing from Japan's Itochu Corp., as the trader joins AMCI and South Korean steelmaker Posco with plans to support coal demand in Asia.

The group under developer North Central Resources LLC (NCR) wants to ramp up shipments to global markets in 2023, with Japan, South Korea, and India currently among the largest US met coal export destinations.

Itochu's entry into the $450 million underground mine project may be welcomed by buyers, as US miners fought for survival last year as lower demand and a decline in spot export prices elevated costs.

The new 4 million st/year Longview mine "will be contributing a stable supply of high quality metallurgical coal to global customers, particularly in Japan and Asia," Itochu said in a December 25 statement.

Sources close to the mine project expect the finished product to be a high-vol A coking coal with high CSR, and final specifications such as ash and sulfur dependent on future coal processing and marketing.

Finding investment from Itochu, a large trading group with assets in Australian coal and iron ore mines, demonstrates the US coal sector is more reliant on long-term supply funding capital from Asian coal traders and buyers, after a run of bankruptcies and fund-focused US investments limited interest in new mines.

Longview may help allay concerns US coking coal supply is shrinking due to high mining costs and limited demand for coal from North American steelmakers.

Combined with an expansion at the 3 million st/year Leer South mine starting to add shipments in Q3 2021 and potential for growth from other mines, the US is set to boost supplies of higher CSR, low ash high-vol coals, aiding blending options for steelmakers and coke plants.

Longview "will produce high-quality coking coal with world-class cost competitiveness," Itochu said.

At the same time, the new mine potentially adds high-vol coking coal supplies into a competitive market.

Market demand and pricing for high-vol A and B could encourage changes to product specifications as higher and lower quality coal converge, according to some US market sources.

US high-vol A to high-vol B premiums have ranged in a $10-$40/mt band over 2019, based on S&P Global Platts benchmark US coking coal assessments.

Lower premiums for high-vol A in the second half followed fading spot demand for higher quality coals on weak steel margins in Europe and Brazil, as well as in Asia.

High-vol A premiums to high-vol B fell below $10/mt in December, during which period US spot export pricing moved well below marginal US mine production costs and domestic contract prices.

As US coking coal exports fell in 2019 by over 10%, and demand in the US also weakened, the global steel market is relying more on cyclone-prone coking coal supplies from Australia.

As the biggest seaborne coking coal exporter, Australia is increasingly feeding growth in China and other Asian markets, over static demand in Europe and South America.

This could set the stage for more volatility in coking coal prices in future, as the US is unable to easily add tons after a structural, coal industry contraction.

At the same time, global markets are increasingly seeking higher quality coals and blending qualities to reduce overall costs.

The Longview mine is currently under development in Barbour County and planned to reach full-scale output at the end of 2022, to rank among the largest met coal mines in the US.

Itochu is providing development capital in line with its 25% equity stake in developer NCR, and the partners will develop a dedicated global marketing company, the Japanese company said.

AMCI holds a 42.38% stake in NCR, with Posco's interest at 22.05% and investor JAZ at 10.58%, Itochu said.

-- Hector Forster, hector.forster@spglobal.com

-- Edited by Alisdair Bowles, newsdesk@spglobal.com