MET COAL SERIES: China's 2024 met coal demand to rise only slightly amid property, infrastructure drag

This five-part story series examines the coking coal market from a few angles. This first part focuses on India's rising importance in spot markets. The second part visualizes the nation's meteoric rise in met coal demand, the third examines Australia's continued dominance as an exporter. This part examines China's domestic demand, while the final part explores how US exports hinge on the growth of Asia's blast furnace capacity.

China's metallurgical coal demand is expected to rise only slightly in 2024 from 2023 as major steel consuming sectors -- property and infrastructure -- continue to remain weak, limiting downstream steel demand.

The property and infrastructure sectors in China each account for around 30%of total steel consumed in the country, and hence have a direct impact on demand for steel raw materials such as met coal.

While the property market has been in shambles over the past few years, the infrastructure sector has recently come under pressure from the ballooning debt of local governments.

The outlook for these segments, especially infrastructure, remain hazy at a time when local governments are trying hard to rein in their debt burdens with projects being pivoted to public-private partnerships, a Xiamen-based trader said.

Met coal demand

During 2022 and 2023, China's met coal demand continued to rise despite declining demand from the property and infrastructure sectors, sources said.

Even though the two sectors are seeing lower steel demand, no major drop has been observed in overall production ratesas decent demand from the manufacturing sector and elevated exports keep encouraging steelmakers to produce more, according to sources.

As the met coal sector navigates these different market conditions, China's met coal demand in 2024 is seen rising only slightly from the previous year.

China is expected to consume 595.64 million mt of met coal in 2024, up 0.9% from 2023, said analysts with Wuhan-based consultancy Tianfeng Securities.

"Steelmaking is still one of the pillars of China's economy, so it is not expected to deteriorate that much even if it goes downhill, but the market is definitely not too optimistic about the demand for coking coal for the rest of 2024," the Xiamen-based trader said.

But it is clear that China's met coal demand consumption growth rate has slowed down over the past two years.

China's met coal consumption rose 2.8% on the year in 2022, while it grew 4.6% on the year in 2023, according to Tianfeng analysts.

Prices

Amid contrasting market conditions, seaborne coking coal prices overall received some support in April.

But that was backed by a robust market in China, following two rounds of hikes in domestic met coke prices totaling Yuan 200-220/mt amid thin coke inventory and improving mill margins, according to sources.

Platts assessed premium low-vol hard coking coal CFR China up about 8% from $237/mt on April 11, the lowest level this year, at $256/mt on May 2, according to S&P Global Commodity Insights data.

However, some China-based market participants see this recent rally as a short-lived rebound rather than a major fundamental change in market direction.

Such a rebound in coking coal prices is mainly driven by the uptick in the coke market, which has experienced an overcorrection in prices since mid-February. That has led the cokeries to reduce their output amid widening losses, laying the foundation for the recent price hike in the coke segment, a domestic miner source said.

There is a lack of fundamental improvement in the downstream demand. The market looks structurally weak in 2024, and domestic coking coal supply is unlikely to improve due to safety checks in place and tepid demand from mills, the same source noted.

Despite an improvement in margins lately, Chinese mills are cautious about ramping up their production as the market is already oversupplied. Near-term price directions especially after the Labor Day holidays for both domestic and seaborne coking coal will hinge on downstream demand from the infrastructure and property sectors.

Mongolia, Russia continue to shine

China's met coal imports are expected to largely come from Mongolia and Russia this year, continuing the trend seen over the past few years, analysts said.

Australia, traditionally the largest supplier of met coal to China, has seen its market share dropping off drastically after an informal ban led to zero imports into China for almost two years.

Even though the unofficial ban was lifted in 2023, Australian exports are still not at levels seen in 2017, when China imported about 44 million mt of met coal, according to S&P Global data.

Australia's met coal exports to China could double from last year and reach 15 million-20 million mt in 2024, according to Paul Bartholomew, analyst at S&P Global.

On the other hand, despite a reintroduction of tax on imported coal, China's met coal imports from Mongolia could reach 55 million-60 million mt in 2024, up from 53.96 million mt, analysts with China-based consultancy Donghai Futures said.

China reimposed a 3% tax on imported coal, which could raise Mongolian coal sourcing costs by Yuan 30-50/mt ($4.15-$6.9/mt), the Donghai analysts said.

However, current profit margins from Mongolian imported coal trade were still enough to cover the higher costs and won't impact Mongolian coal trade, they added.

Meanwhile, Russian exporters could see some pressure on their profitability due to the tax, and imports may remain almost flat in 2024 from 2023, the analysts said.

China's tax could raise importing costs for Russian coal by Yuan 80-90/mt to almost breakeven levels, which may cap growth of imports, according to Donghai analysts. China is expected to import 26 million-27 million mt of coal from Russia in 2024, compared with 26.64 million mt in 2023, the analysts said.

Mongolia and Russia combined accounted for 78% of China's 2023 met coal imports of 102.94 million mt, China's customs data showed.

About 13% of China's met coal imports in 2023 came from the US and Canada, according to customs data.

China's met coal imports from Canada may fall in 2024 from 2023 levels due to lower output, with imports expected to reach 7.3 million mt in 2024, according to data from investment bank China Securities Co (CSC).

China's 2024 met coal imports from the US could see a sharp rise of 42% on the year to 6.15 million mt, led mostly by infrastructure and logistics upgrades, CSC said.