Global coking coal supply issues push prices to historic highs

Global coking coal markets have seen supply disruptions lead to tight supplies and limited spot market availability for an extended period, leading to two periods of record-high spot prices over $400/mt FOB Australia this January and September 2021.

Miner BHP cited heavy rain and COVID operational pressure weighing on coking coal production in the past few months following Q3 maintenance on coal processing plants. "Significant La Nina related wet weather impacts during the December 2021 quarter coupled with COVID-19 related labor constraints," led to lower production guidance. Labor constraints impacted coal mine stripping and mine productivity across most operations, it said.

The update may be followed by further details from Canada's Teck, the second largest seaborne coking coal supplier, on its earlier November announcement around difficulties shipping coking coal due to flooding in British Columbia hitting rail services. Teck said Nov. 16 the overall impact and any potential effect on Q4 coal sales would be dependent on the duration of the logistics chain disruption. A European end-user reportedly recently purchased a cargo from Teck, although further details were not available.

Demand for met coal has been supported by strong steel prices, although the rebound in iron and steel rates seen over 2021 has slowed, with more pressure on steel margins in some markets from high met coke and coking coal costs. Some buyers are prepared to wait it out for price declines and improved supply. Several major end-user procurement executives saw a limited need to buy spot straight after the end-of-year break.

US met coal miners have been citing labor shortages and interruptions due to COVID at mines and operations in the past year, with the added pressure from winter weather and storms. A halt at CSX's Curtis Bay coal terminal after an explosion was met with limited flexibility to load elsewhere, according to market sources. Along with rail and port service impact, US production rates have slowed, especially at some mines with limited on-site coal storage.

BHP said that in Queensland double the amount of rainfall was recorded in Q4, impacting most met coal operations. Other major coking coal operators in Queensland include Anglo American, Glencore and Peabody Energy.

Group met coal output of 8.8 million mt in Q4 -- 15.1 million mt on an operational basis -- was unchanged from the previous quarter, which was affected by planned maintenance. In Western Australia, BHP produced 66.1 million mt of iron ore, up 6% year on year.

BHP CEO Mike Henry said the company's "continuing focus on people and on operational reliability enabled us to achieve near record production in iron ore and to reduce the impacts of adverse weather and COVID-19 related labor constraints in our operations," in a Jan. 19 report.

BHP cut fiscal full-year met coal production guidance to 38 million-41 million mt, from 39 million- 44 million mt previously. BHP's coal operations with Mitsubishi Corp. plan to produce 68 million-72 million mt on a 100% basis during July 2021-June 2022.

BHP added workforce absenteeism arising from omicron variant infections is anticipated to continue into early 2022. Absentee rates have climbed after an easing of Queensland's border restrictions, and absenteeism remains a risk for the remainder of the year, it said.

BHP performed a longwall move successfully at Broadmeadow mine, and said maintenance on the Caval Ridge coal washing plant was completed on time during Q4.

BHP said a large majority of met coal exports were linked to index pricing for the month of shipment, or sold on the spot market at fixed or index-linked prices, with price differentials reflecting product quality.

BHP said its hard coking coal prices, for all grades with CSR above 35, averaged at $278.60/mt FOB in the July-December half, while "weak coking coal" averaged at $218.65/mt FOB over the same period.