Coking coal prices may fall further before stabilizing above $200/mt: CBA

Coking coal prices may fall further from the highs reached earlier this year before stabilizing above $200/mt FOB Australia -- higher than historic average levels -- due to insufficient global supply growth to cover shortfalls in trade resulting from sanctions against Russia, the Commonwealth Bank of Australia said on July 11.

The Platts Premium Low Vol FOB Australia assessment, a global benchmark for metallurgical coal, was at $258/mt FOB on July 8, down from $302/mt at the start of the month and off considerably from a high of $671/mt FOB on March 14.

Since October 2010, monthly PLV prices have averaged just below $186/mt FOB Australia, with considerable volatility in the past two years as steel production, mines and coal supply chains came under pressure to quickly meet post-pandemic demand as plants restarted.

CBA said that it sees spot prices potentially declining further and possibly going below the $200/mt FOB level, at which point supply and demand should provide to pricing support above marginal cost levels. Weaker steel production and potential further adjustments down in output has reduced demand for restocking raw materials as procurement executives wait for a recovery in steel margins and firming in forward orders.

"The big question for coking coal markets is where prices land. We think a coking coal price above historic levels like $200/mt FOB Australia makes sense," CBA analyst Vivek Dhar said in a note. "With global growth fears intensifying though, it's possible that coking coal prices breach this level, especially if global steel prices continue to fall."

Russia accounts for around 10% of seaborne coking coal trade with Australia's share at around 53%, CBA said. Markets may see reduced availability of met coals stemming from trade restrictions and sanctions on Russian-origin coals following the war in Ukraine.

"We believe a supply gap in coking coal markets is likely from weaker net demand for Russian coking coal exports and insufficient supply relief from elsewhere," CBA said.

Wet weather impacted coal supply from Australia earlier in the year for both hard coking coal and PCI, as well as semi-soft coking coal. Australian exports have weakened so far this year, while China and India have imported more Russian met coals as trade flows diverted and China's domestic coal output increased as Mongolian coking coal exports rebounded in the second quarter.

Sanctions and trade restrictions on Russian coal products have hit buyers using Pulverized Coal Injection coal, coking coal and anthracite for metallurgical applications, pushing up demand on alternative coals and met coke.