Trade Review: Asia met coal market sees light ahead on Q4 restocking demand, scarce supplies

This report is part of the S&P Global Commodity Insights' Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore, metallurgical coal, copper, alumina, and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts, to new arbitrages, and to quality spread fluctuations.

The seaborne metallurgical coal market is entering the fourth quarter on firmer footing, as weather-related disruptions stoke supply worries while year-end restocking demand from India and China keep prices supported after a volatile Q3.

Benchmark Platts premium low-volatile hard coking coal prices, basis FOB Australia, declined $31.5/mt, or 10%, on the quarter to $270.50/mt while PLV CFR China was down $86/mt, or 22%, to $308/mt at the end of Q3, S&P Global Commodity Insights data showed.

Market participants anticipate a third straight year of supply disruption from Australia, with the country's meteorology department predicting wetter-than-average October to December for eastern Australia

Meanwhile, on the demand side, expectations of increased restocking activities from India and China in Q4 are likely to further support prices.

Spot liquidity continues to improve

S&P Global observed total spot transaction volumes at 2.72 million mt in Q3, up 22% from Q2, as prices fell to competitive levels to incentivize demand. Out of all the deals reported for Q3, a majority 88% was observed to be of premium hard coking coal.

Since the beginning of the year, the spot market continues to see increased activities, with Q2 seeing 2.2 million mt and Q1 at 1.7 million mt, respectively, compared with just 1.1 million mt for Q4 2021.

However, total estimated 2022 spot deal volume, at 10.73 million mt on annualized basis, is still behind that of 2021 at 20.58 million mt, primarily due to much lower Chinese imports of premium hard coking coal and pulverized coal injection coal this year.

All eyes are on China's National Congress meeting on Oct. 16 as it could provide some clarity on import policy towards Australian coal, market sources said.

"High strength, low Ash and low sulfur Australian met coals are always desired in our blast furnaces, and hopefully the October National Congress will bring some new hope," said an end-user based in Northern China.

China accounted for nearly 80% of total spot market prior to the unofficial import ban on Australian coal, according to S&P Global data.

Met coke in near-term surplus

The ex-Asian metallurgical coke market has faced downward pressure, as demand deteriorated following the idling of about 9-12 blast furnaces in Europe amid high energy costs.

Take our poll: With the seaborne met coal market entering Q4 amid healthy spot demand and lack of supply, where do you see prices at the end of the quarter?

Note: The result of this poll has no bearing on price assessments.

— S&P Global Commodity Insights Metals (@SPGCIMetals) October 5, 2022

European coke plants are concurrently said to have continued the normal production to produce gas for power generation, which has sparked talks of European steel mills selling their excess self-produced met coke. No such offers were heard as of end-Q3, but several Europe-bound distressed met coke cargoes were observed to be diverted to Asia, including India and China. In addition, more Columbian and Polish met coke spot offers were also heard in the same area, several sources said.

Price disparity in Australian PCI prices

While the relativity of Australian PCI with PLV remained at elevated levels in Q3 due to limited spot supply and a strong thermal coal market, a weakening met coal market, along with the inflow of cheaper Russian PCI, could weigh on Australian PCI materials across the destination markets in Asia.

Japanese and South Korean end-users have continued to receive Russian materials under the previously signed long-term contracts, while spot transactions were also observed in Southeast Asian markets -- including Malaysia, Vietnam, and Indonesia -- with one of the payment methods being telegraphic transfer in Singapore dollars.

Close to 47% of India's PCI imports were Russian, from January to July, while China's Russian coking coal imports also reached a historic volume of 2 million mt in July.

While fix-priced spot offers of Australian PCI materials were heard at a premium over the LV PCI FOB Australia price in Q3, no conclusions were observed, suggesting that a wide disparity in price opinions between buyers and sellers could remain for the near term.

More PMV cargoes trading for Q3

In the premium hard coking coal segment, a greater number of premium mid-vol (PMV) hard coking coal were observed trading in Q3, up from 84% of the total PHCC segment, and from 58% reported for Q2, based on S&P Global data.

So far this year, increased volumes of Illawara, Goonyella C and Caval Ridge were reported to be trading, while declines were reported for Peak Downs, Saraji, Goonyella, Moranbah North, Peak Downs North, Riverside and GLV, as per the data.

India is poised to be the largest spot fixed price basis importer for Australian met coal, accounting for up to 56% of total spot deals volume in 2022, up 21% from 2021. The removal of import tariffs on coking coal in India in May supported demand for premium hard coking coal from Australia, with greater preference for premium mid-vol coal that has higher fluidity to support stronger steel output.

"The preference for PMV over PLV coal in ex-Chinese markets can be attributed to the higher volatile matter property, providing higher coke yield, coupled with a relatively greater fluidity that provides better flowability in the coke ovens, especially better suited for the Indian coke ovens", a trader said.

Market participants expect the spread between PLV and PMV coal brands to continue narrowing in Q4, on continued preference for PMV in ex-Chinese markets.

Demand, and the resulting relativity for PLV brands, especially Saraji, will remain dependent on whether Chinese will come back to the market for Australian coal this Q4, sources added.