Ukrainian steelmaker Metinvest has turned to the seaborne coking coal market in the past 2-3 weeks to replace Russian supply that has been cut off since Moscow imposed a new permitting process on coal exports to Ukraine on 1 June.
Metinvest has not received any Russian coking coal since 1 June, the company said. Prior to the disruption, Russian coking coal and pulverised coal injection accounted for 30pc of the steelmaker's blend.
Steel market participants this week have been speculating about whether Metinvest's current pull-back from the billet and hot rolled coil (HRC) market might be connected to the coal supply disruption. But the steelmaker confirmed today that it had sufficient coking coal stocks to provide a short-term buffer and has taken steps to mitigate any operational impact by hitting the seaborne market, booking significant volumes in the past 2-3 weeks in order to offset the lost Russian volumes. A market participant estimated the volume affected to be up to 1mn t, depending on the duration of the disruption.
The latest bookings are multi-origin, sourced from countries including Australia, the US and Indonesia. Market participants have also noted recent Ukrainian bookings directly from Amsterdam-Rotterdam-Antwerp stocks.
The mill's coking coal requirements are now covered until Autumn, and its US subsidiary United Coal Company (UCC) is offering 80,000t of Affinity low-volatile coking coal for August-September shipment — in line with UCC's prior target of selling 200,000t in the merchant market this year.
Affinity low-volatile coking coal typically has a dry ash content of 7.75pc, dry sulphur at 0.75pc and volatile matter at 17pc dry basis. CSR is pegged at 64.9 or 67.8 depending on method of testing.
Argus today assessed US low-volatile coking coal prices at $169.50/t fob Hampton Roads, compared with the daily fob Australia index for premium hard low-volatile coking coal at $187.80/t.
The steelmaker also indicated interest in Canadian low-volatile grades, but said its low-volatile requirements are largely covered by its own assets — namely UCC in the US and Ukraine's Pokrovske mine, in which Metinvest has a 24.99pc stake. UCC and the Pokrovske project each supply Metinvest with around 3mn t/yr of coking coal, comprising a mix of low-volatile and high-volatile type A grades.
Metinvest confirmed it has received offers from European mills looking to offload excess met coke, but is currently fully covered by its own coke production. It is particularly unlikely to need a top-up given it is reducing steel production in reaction to market dynamics.
A Mediterranean steelmaker is understood to have offered met coke at $280/t cfr Mariupol 2-3 weeks ago, but the offer failed to attract buying interest, with one market participant commenting that the price was too high relative to regional pig iron prices.
Argus today assessed Ukrainian basic pig iron at $340/t fob Black Sea, up from $333/t three weeks ago on the back of tight availability. Conversely, fob China met coke benchmarks have fallen over the same period, to $292/t from $310.40/t for 62 CSR, according to Argus assessments.
Steel production cuts
Metinvest confirmed it is reducing steel production because of scheduled maintenance at several blast furnaces at its plants and joint ventures. Sources say this is also linked to the general weakness of the flat steel market and slim margins.
The firm expects pig iron production to fall by 200,000t in the third quarter compared with the second quarter. Modernisation of its rolling mill at the Ilyich plant will take out 150,000t of HRC in the same period, but output will be ramped up in the last quarter of the year.
The mill is understood to be inactive on the spot market for some steel products at the moment, owing to the reduction in output in the third quarter. It would normally be offering from its August rolling programme, but no new offers were heard by Argus this week.
Slow demand for flat products in Europe and Turkey has also hit CIS suppliers. Although there are duties on CIS HRC imports in the EU — which have limited mills' access to the market — safeguard quotas on other flat steel, in addition to the automotive sector weakness, are impeding overall sales to the region. In the meantime, demand from Turkish buyers — for many of which Europe is the largest export destination — has dwindled this year.
But with maintenances at a number of CIS producers already started, and a fire at MMK this week taking the company off the spot market, a squeeze in CIS supply may ensue, which could balance out supply-demand dynamics in the Black Sea region.
