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China's premium low-vol, mid-vol hard coking coal spread hits historical high

Singapore — The spread between premium low-vol and mid-vol hard coking coal prices to China has increased to a historical high due to reduced appetite for mid-vol coal from Europe and India, along with plentiful supply from Australia.

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The premium mid-vol product has typically achieved 97%-98% of the realized spot price of premium low-vol CFR China over the past four years, S&P Global Platts data showed.

PMV Peak Downs North traded at around 95% of the PLV CFR China index in August, but spot prices now suggest PMV Peak Downs North trading at around 90%.

The spread between the two coal products has widened amid metallurgical coal prices weakening in the past two months. The premium low vol hard coking coal benchmark has fallen by more than 20% since the start of July.

PMV cargoes mainly target customers outside China and are popular for their fluidity content, among other factors. But Indian demand for spot shipments has been dampened by a steel sector beset by slowdown in manufacturing and property construction.

European steelmakers have been cutting production amid weak demand and high volumes of steel imports. Cargoes of PMV coal have subsequently been redirected into China, but ran up against the country's import quota policies.

As a result, seaborne coals have to be heavily discounted to entice any buyers. Demand for PLV remains firm as China's larger and more efficient steelmakers have specific requirements for high CSR coal.

Market sources said the current behavior between premium low-vol and mid-vol coal was "unorthodox" and may only be a temporary market development.

China's winter steel cuts may have an impact on appetite for different grades of coal, they added. But early indications are the policy will be similar to last winter when the steel production curtailment was relaxed.

AUSTRALIAN PMV SUPPLY RECOVERS

On the supply side, production of PMV has ramped up in eastern Australia from the second quarter due to better weather conditions, which is also contributing to lower prices.

"There are no close substitutes for Australian PLV, particularly the Saraji and Peak Downs coals," a miner said.

By contrast, PMV coals are less rare. BHP produces several PMVs in Queensland, including Goonyella, Goonyella C and Peak Downs North. Anglo American produces Moranbah North in Queensland and South32 produces Illawarra coal in New South Wales.

"Just compare the number of PMV coking coal mines compared with PLV mines. Furthermore, there has been a recovery in PMV production," a trader said.

-- Yi-Le Weng, Yi-Le.Weng@spglobal.com

-- Edited by Shashwat Pradhan, shashwat.pradhan@spglobal.com