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

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

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ArcelorMittal said Wednesday it would widen steel output cuts into Northwest Europe in response to market conditions. That, and British Steel's insolvency, is bruising sentiment on US met coal sales.

With ArcelorMittal buying US coal last year for both US and Atlantic-based operations, and Europe a major US met 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.

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

Other US 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 US 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 US fixed pricing levels for 2019 are compared with higher priced Australian premium coals, where indexes have outperformed US met coal export indexes.

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

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

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

Without stating the volume affected, ArcelorMittal said Wednesday it will reduce steelmaking at blast furnaces in Dunkirk, France and at Eisenhuttenstadt, 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 had said on May 6 it was idling output in Krakow, 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 mt of crude steel on an annualized basis, it said.

That reduction in steelmaking may be roughly equivalent to around 1.5 million mt annualized of coking coal and PCI, 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 $202.42/mt, with July down 0.4% to $199.17/mt, based on Platts assessments at 5:30 pm Singapore time.

The futures market saw 6,000 mt trade on the Singapore Exchange (SGX) Tuesday, with June at $203/mt and August at $196/mt. The July contract was marked down by $2/mt to $200/mt.

Platts TSI Premium Hard Coking Coal reference price, used for settlement of SGX's coking coal futures, was unchanged at $203.80/mt FOB Australia.

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

-- Edited by Dan Lalor, daniel.lalor@spglobal.com