Coking coal spot up 40%; question on coming quarter’s supply
Contract prices for coking coal, a major steel making input, are likely to substantially strengthen into the next quarter, as supply-side constraints in Australia’s flood-ravaged Queensland province, among the main coal exporting regions in the world, will persist.
In unwelcome news for Indian producers, heavily dependent on Australian imports, analysts predict coking coal prices for the next quarter could move up to $340-400 per tonne. Spot prices are currently around $380 a tonne, up from $240 a tonne last month.
“We are bullish about coking coal prices. There are going to be constraints for the next two quarters, but from Q3 onwards, we see more supply coming in,” said Andreas Bokkenheuser, a Singapore-based analyst at UBS.
While contract prices for the next quarter could be as high as $350 per tonne, according to Bokkenheuser’s estimates, they are slated to cool to about $250 and $205 per tonne for the following two quarters.
Bank of America Merrill Lynch, however, according to reports, last month raised its outlook even higher for second-quarter coking coal prices, at around $400 per tonne, a jump of $60 per tonne from its previous forecast.
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The increased prices will eat into steel players’ margins compared to the January-March quarter, as increased spot prices would result in higher contract rates for the quarter. Producers note the margin pressure was evident in the third quarter results. While coking coal prices increased 20 per cent during October-December, steel prices increased 13 per cent.
Unclear for now Then, there’s Cyclone Yasi which hit last week, one of the largest to hit Australia ever. Major mining companies, including BHP, Peabody and Xstrata, as well as most ports in the region, had to stop recovery efforts and shut before Yasi made landfall.
“February to March is normal monsoon time, but the floods have created havoc. We expect contract prices for April to be between $300 and $350 a tonne, which will ease,” said Bhushan Steel managing director, Neeraj Singal. Bhushan imports all its coking coal requirements from Australia.
“Miners are rational and we expect prices to stabilise. At present, the price expectation is speculative, but it will have an upward bias on steel prices,” said JSW director-commercial and marketing, Jayant Acharya.
Non-integrated steel producers would bear the highest brunt. “The increased coking coal prices will drive these players’ margins down by 400-500 basis points, compared to the January-March quarter, as increased spot prices will result in higher contract rates for the quarter,” a Crisil Research report said.
Late last month, the Queensland Resource Council, an industry body representing the province’s resources sector, said “Production in the March 2011 quarter is expected to fall by at least 25 per cent and up to 50 per cent under a ‘high impact’ scenario.” That was before Yasi thundered in, even as Queensland’s 57 producing mines were working furiously to remove floodwater from mining sites and restoring transport links.