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Atlantic coking coal demand hit by latest ArcelorMittal, Europe steel cuts

Atlantic metallurgical coal and metallurgical coke markets are facing potentially lower spot activity from a further weakening in European steel demand.

ArcelorMittal said May 29 it would widen steel output cuts into Northwest Europe in response to market conditions. That, and British Steel Corp. Ltd.'s insolvency, is bruising sentiment on U.S. metallurgical coal sales.

With ArcelorMittal buying U.S. coal in 2018 for both U.S. and Atlantic-based operations, and Europe a major U.S. metallurgical coal market along with Brazil, India, Japan and South Korea, any uncertainty around demand from the world's biggest steelmaker may add to complications and delay.

U.S. domestic contract discussions for 2020 would keenly track European demand developments and spot export prices, one U.S. market participant said ahead of ArcelorMittal's announcement. The supplier expected lengthier discussions, with talks yet to start in earnest.

Other U.S. miners have indicated general availability and purchasing plans being shared without a move to discuss price and concrete terms such as fixed prices and formulas.

According to U.S. market sources, so far in 2019, fixed price levels agreed in 2018 may have worked out marginally lower than export spot prices through to the end of May, on an equivalent FOB mine basis.

That may be especially so when U.S. fixed pricing levels for 2019 are compared with higher priced Australian premium coals, where indexes have outperformed U.S. metallurgical coal export indexes.

In 2018, U.S. steel and coke market participants acted earlier to secure coal.

Sources commented on ample supplies of U.S. low-vol hard coking coal available recently, while any changes in planned metallurgical coal shipments and sales in response to changing demand and steel conditions may be too early to see.

U.S. steel mills have increased demand for metallurgical coal, as higher capacity utilization pulled coke consumption up, despite operations at the U.S. Steel Corp. Clairton coke works in the first quarter being hit by repairs after a fire.

Without stating the volume affected, ArcelorMittal said May 29 that it will reduce steelmaking at blast furnaces in Dunkirk, France, and Eisenhüttenstadt, Germany, and in the fourth quarter at Bremen, Germany.

In Bremen and in Asturias, Spain, planned blast furnace repairs in the fourth quarter will be extended, the company said.

Elsewhere, British Steel, which runs two blast furnaces and a coke works in Scunthorpe, England, has run out of cash, citing Brexit as the reason for a cut in order demand for steel and raising costs to comply with legislation on emissions.

ArcelorMittal said May 6 that it was idling output in Kraków, Poland, and reducing output in Asturias and slowing a ramp-up at the Ilva plant in Taranto, Italy, which was recently incorporated into the group. The moves would cut 3 million tonnes of crude steel on an annualized basis, it said.

Drop in coal demand

That reduction in steelmaking may be roughly equivalent to around 1.5 million tonnes annualized of coking coal and pulverized coal injection, based on industry operating rates.

The earlier notice by ArcelorMittal was said by market participants to have hit European merchant coke demand more than affecting coking coal consumption at coke plants.

Higher relative prices for blast furnace and other metallurgical coke had been incentivizing steel mills to maximize captive coke production with purchased coals.

ArcelorMittal, which runs several coke plants in Europe, with Poland operations traditionally supplying coke also outside the country, said it continued to be affected by weak market demand and high steel import levels in Europe.

Coking coal futures have come off this week, with spot demand supported mainly by China, and FOB Australia demand weaker.

At the front of the curve, June futures fell 0.3% to US$202.42/t, with July down 0.4% to US$199.17/t, based on Platts assessments at 5:30 p.m. Singapore time on May 29.

The futures market saw 6,000 tonnes trade on the Singapore Exchange, or SGX, on May 28, with June at US$203/t and August at US$196/t. The July contract was marked down by US$2/t to US$200/t.

Platts TSI Premium Hard Coking Coal reference price, used for settlement of SGX's coking coal futures, was unchanged at US$203.80/t FOB Australia.

Hector Forster is a reporter for S&P Global Platts.

S&P Global Platts and S&P Global Market Intelligence are owned by S&P Global Inc.