The worst could be over for U.S. metallurgical coal producers as the global market may have hit bottom, at least for now, according to Seaport Global Securities LLC analyst Mark Levin.
After hitting a three-year low of $137/tonne in late September, the S&P Global Platts spot price for premium low-volatile metallurgical coal rose to $152/tonne, Levin wrote in an Oct. 15 note. There have been relatively few supply issues encountered by producers in recent weeks, a catalyst that often pushes metallurgical coal prices higher, but prices are still on the rise.
"We would argue the worst is behind the met market, at least for now," Levin wrote. "Ironically, what's been driving met coal prices higher has little to do with improving underlying steel fundamentals or margins. In fact, steel company margins, whether in China, India, Japan, Europe or the U.S., remain very weak with steel prices under pressure due to weak end-market demand and iron ore prices remaining stubbornly high."
What is driving the price increase are expectations that China's import restrictions on coal will end Jan. 1, Levin said. At the same time, coal buyers in India returned to the spot metallurgical coal market following the country's monsoon season and ahead of a major holiday. Australia's rainy season, which often causes significant supply disruptions, is also approaching.
"While the country's mines, rails and ports have vastly improved their ability to withstand these events, Mother Nature can still wreak havoc," Levin wrote.
Metallurgical coal producers, including Contura Energy Inc., Blackjewel LLC, Blackhawk Mining LLC and Murray Energy Corp., recently pulled back on metallurgical coal production. Levin predicted Sept. 30 that lower metallurgical coal prices would lead to further mine closures.
S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.