Viewpoint: US met coal miners expect more upside

Spanish Market: Coking coal
26/05/21

US coking coal producers say spot prices have yet to hit a ceiling, despite the lull in China, as buyers digest surging offer levels and plans by top economic planning body the NDRC to stabilise steel and iron ore prices.

While last week's US low-volatile offers approaching $300/t cfr China and a dip in Chinese steel prices has checked buying, suppliers and buyers say demand is unchanged.

Mongolian exports to China are still affected by Covid-19 restrictions at the Ceke and Ganqimaodu border posts, while US, Canadian and Russian alternatives to Australian coal have covered just over half of China's regular imports. China imported 14.74mn t of coking coal in January-April, down from 27.08mn t a year earlier.

Chinese mills have also looked to domestic mines to supply some of their needs. But a supply gap remains, and this is reflected in the rise in US prices since the second half of last year. Premium low-volatile US coals, such as Oak Grove and Blue Creek 7, are a natural fit for China and have led the increase in prices. The rise in Atlantic low-volatile coking coal prices has extended to US high-volatile material since late last year. Arch Resources concluded a 300,000t year-long deal for high volatile A coal into China in December, and more recently sold a spot cargo into China at $179/t fob Hampton Roads. The share of Metinvest's US coal in China has also grown, with its low-volatile Affinity coals well received and its Wellmore and Carter Roag brands increasingly visible.

Prices are still below the highs of 2018, when US values rose in line with Australian values. In January 2018, Argus-assessed Australian premium low-volatile prices hit the year's high of $260.50/t fob and averaged $207.42/t fob for the rest of the year, reflecting Chinese demand. In the same year, US low-volatile coal hit a high of $206/t fob Hampton Roads and averaged $188.17/t fob, driven by strong Australian prices. The US high-volatile A price averaged $198.11/t fob Hampton Roads in 2018, and hit a high of $218/t.

While China also imposed import controls on coals in 2018, it was a general ban to support domestic coal mining — not a ban on Australian coals alone. US coal exports to China were subjected a 25pc tariff from late August 2018, removing 2.8mn t, or 4pc, of China's coking coal imports in 2017. With Beijing lifting the tariff last year, US firms' access to China has improved. Chinese buyers started seeking US spot cargoes in late February 2020, ahead of tariff exemptions that began on 2 March.

US producers are only restricted by their ability to offer sufficient volumes, following last year's output cuts of around 20pc and maximised term commitments to European, South American and domestic buyers.

Chinese buyers still expect the falling steel prices of the last week and deteriorating steel margins to limit acceptance of rising coking coal prices. Some Chinese participants say prices could start falling in June, particularly as many late-June and July-loading US cargoes are understood to be held by trading firms, rather than mills.

The high cost of freight has also compounded the rise in cfr China prices, which was largely driven by demand and tight supply. But as long as restrictions are in place on the Mongolia border, Chinese mills will have little choice but to look to US, Canadian and Russian imports. Panamax rates for coal cargoes on the route from the US east coast to China are estimated at $50-55/t this week, up by about $20/t from the start of this year.

Other pressure points

US coking prices are supported by other factors, including strong export demand from Europe and Brazil, and domestic demand.

US domestic demand has been strong since the second half of last year, with the Argus-assessed domestic Midwest hot-rolled coil (HRC) assessment exceeding $1,600/st yesterday. Coke consumption in the US has been strong as a result, and US integrated steelmaker Cleveland Cliffs is due to restart its Monessen coke plant in August, adding to domestic demand.

US met coke producer SunCoke Energy returned to full capacity in the first quarter and is investing at the Jewell coke plant in West Virginia to allow it to start producing foundry coke. Jewell currently sources around 1mn st/yr of coal from Virginia and southern West Virginia.

New high-volatile A production coming to market from Arch Resource's Leer South project in the third quarter is expected to find buyers in China. Since the 2018 import bans, Chinese mills have been adjusting their blends to reduce reliance on Australian coal, shifting towards burning more imported high-volatile material with domestically produced coal.

By Siew Hua Seah

Australia low vol, US low vol, US high vol A prices $/t

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

19/12/24

Strikes at Australian commodity ports to continue

Sydney, 19 December (Argus) — Workers at major commodity ports across Australia will strike next week, in response to stalling negotiations with port operators. Queensland In northern Queensland, unions representing almost 200 workers have notified the Gladstone Ports (GPC) that they plan to launch work stoppages at the LNG and coal hub next week, a source told Argus. The strike actions follow an earlier day-long work stoppage involving over 100 workers at the port that began earlier this week. The dispute between GPC and its workers is centred around wage and rostering proposals. GPC and unions representing its workers have not scheduled any further bargaining meetings, multiple sources have told Argus . Gladstone's ship queue has exceeded 30 ships multiple times since work stoppages began on 17 December. This compared with a queue of 48 ships in December 2023, after Cyclone Jasper forced three other north Queensland ports to turn vessels away for four days. To the south of Gladstone, 100 workers at the Qube-operated Port of Brisbane will also stop working between 23-27 December, according to maritime logistics firm GAC. The stoppage announcement follows a day-long strike at multiple Qube ports , which began on 16 December. Before the strike began, a Qube representative warned that strikes at its ports would "inevitably [cause] disruption to supply chains for key commodities like fertiliser, grain, and steel." The Port of Brisbane is a major oil and meat port. New South Wales Along Australia's eastern coast, workers at Qube's major coal, grain, and fertiliser port in Port Kembla are planning to strike for a longer period of time than their colleagues in other parts of the country. GAC has reported that workers will launch 13 rolling work stoppages at the port between 20 December and 3 January. There are 141 members of the Construction, Forestry and Maritime Employees Union (CFMEU) participated in a strike authorisation vote at the site in early September, and have been engaged in industrial actions since then. Port Kembla also faced a day-long work stoppage earlier this week. Northern Territory Union members in Darwin are planning to not work for 1½ day beginning on 23 December. Like the Port of Brisbane, Darwin tends to handle livestock and oil products. But only 37 workers were eligible to participate in a successful mid-September union ballot authorising work stoppages at the port. By Avinash Govind Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: More US met coal consolidation ahead

18/12/24

Viewpoint: More US met coal consolidation ahead

London, 18 December (Argus) — Expectations that weak seaborne coking coal prices in the last quarter of 2024 will carry over to 2025 in the face of low steel prices is pointing to further consolidation among US coking coal producers. Consol Energy and Arch Resources set up the most significant merger of 2024 for the US market , with the merged company expected to generate $110mn-140mn of cost savings and "operational synergies" within 6-18 months of the close of the transaction. But continuing cost pressures will likely lead to closures of smaller high-cost mines, not uncommon in the past when US coking coal prices have reached a down cycle. The fob Australia premium low volatile (PLV) coking coal price fell from this summer's high of $260/t in early July to average $203.46/t from the start of October, translating to prices that are below cost for many US producers. In recent years, price volatility and lack of liquidity, particularly in the Atlantic market, has meant many buyers have chosen to buy at index-linked prices, often with fob Australia indexes. The fob US east coast price has averaged $192.84/t for the current quarter, while the high volatile A fob Hampton Road price has averaged $186.47/t in the same period, prices cited by many US producers at near or even below cost after taking into consideration rail and port handling charges. Lower cost longwall miners like Alpha Met Resources reported an average sale cost of $114.27/short ton ($125.96/t) in the third quarter for metallurgical coal, Arch Resources reported $93.81/st for the same and Warrior Met Coal indicated $120.21/st. But others such as Corsa are in clear loss-making territory at $169/st. After freight and handling charges, many of these producers will have fob equivalent costs closer to $170-190/t or even above $200/t for smaller continuous mining operations. The poor margins has also meant US producers like Ramaco have cut back their guidance while lost output capacity has failed to lift prices . Last month, many US producers have already looked to reduce shifts by extending time off for the holidays and hunting season. But this has still failed to stem supplies, particularly in the high volatile coal segment where traders and suppliers that had secured tonnes earlier this year or more recently via term contracts have been offering prices at steep discounts for on-water cargoes to Asia and port stocks in China. US producers have been focusing their efforts on sales to Asia in the face of weak demand in Europe, leading to the absence of much incremental coking coal demand in the region since last year. In a time of high fob Australia prices, margins for US sales to Asia might have been attractive. But with low Australian prices and competition from Russia and Mongolia continuing to grow, the second half of 2024 has seen poor margins for US sales to Asia. While Russian mining costs have risen, they are still well under the levels in the US. Industry sources peg average production cost for open-pit mining in the Kuzbass region at $18.37-35.75/t, excluding value-added tax (VAT), while underground mining stands at $24.83-60.58/t, excluding VAT, according to sources at Russian coal mining companies. Russian coal is also typically discounted to account for sanctions and difficulties with payments, and more recently the export duty on Russian coking coal was removed. US president-elect Donald Trump's threat to impose import tariffs on all imports from China has drawn concern in the market about China imposing retaliatory tariffs on US coal. In a well-supplied market and the presence of strong competing producing countries at key import destinations, many US producers expect they will have to absorb any increase in tariff to secure sales to China. At a recent industry conference in Prague, several participants indicated the fob Australia PLV index should be in the region of $220-225/t to be sustainable for the wider industry. By Siew Hua Seah Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Workers strike at Australia's Gladstone port

17/12/24

Workers strike at Australia's Gladstone port

Sydney, 17 December (Argus) — Union members are engaging in a day-long work stoppage at Queensland's Port of Gladstone today, as port strikes spread across Australia. Gladstone Ports is "experiencing impact to some Port operations due to union-led protected industrial action," a company spokesperson confirmed to Argus . "GPC has been engaged in contingency planning and is liaising with customers to minimise operational impacts while prioritising safety," the representative said. Five unions, representing hundreds of GPC workers, voted to authorise a range of strike actions, including unlimited work stoppages, last week. The current day-long stoppage does not involve all five of those unions, although the non-participating unions may engage in industrial actions over the coming days. The port of Gladstone is a major coal and LNG hub. Queensland exporters shipped 63.7mn t of coal and 23mn t of LNG out of the port in 2023, supporting the state's resource sectors. The Gladstone stoppage comes alongside day-long work stoppages at operator Qube's ports across Australia that began on 16 December. Maritime Union of Australia (MUA) workers last week decided that they would launch 24-hour stoppages at the ports of Kembla, Brisbane, and Darwin, on 16 December. These ports tend to handle grains, livestock, petroleum, and coal shipments. Qube is also expecting the MUA to shortly launch industrial actions at the ports of Dampier, Freemantle, Port Hedland, Bunbury, Geraldton, and Whyalla. The company's Port Hedland and Dampier facilities play a major role in supporting Western Australia's mineral sector, handling iron mined by most of the state's major miners. Union and GPC negotiators have been locked in discussions over the GPC Enterprise Agreement for months, unable to agree on wage and rostering proposals. Qube and the MUA similarly disagree over wage and employment condition proposals. By Avinash Govind Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US rail group optimistic about 2025 rail demand

12/12/24

US rail group optimistic about 2025 rail demand

Washington, 12 December (Argus) — US rail volume is likely to start strong in 2025, but railroads will need to navigate changing federal policies, the Association of American Railroads (AAR) said. Volume next year hinges on a few key factors, including the resilience of consumer spending, strength in the labor market, and the trajectory of inflation and interest rates, the group said. Railroads will need to remain vigilant as these economic indicators will be critical in helping assess rail traffic and broader economic health in the months ahead, AAR said. "Strong intermodal growth and stable consumer demand offers reasons for optimism," AAR said. "But railroads and the economy alike must navigate evolving policies and potential disruptions" as the US enters 2025 under a new administration, the group said. The AAR'S optimism comes as rail traffic in November "while by no means stellar, suggests that the broader economy remains on stable footing", AAR said. US intermodal rail volume set new records in November. The increase reflected strong consumer demand following job gains that pushed increased spending, AAR said. Intermodal traffic is made up primarily of consumer goods shipped in containers between different modes of transportation, although some scrap metal and specialty agriculture products ship this way. US railroads loaded an average of 282,000 intermodal containers and trailers per week, up by 11pc from a year earlier. That was the highest weekly average for any November since AAR began tracking intermodal data in 1989. Carload traffic fell by 3.8pc compared with November 2023. Carload traffic is primarily made up of commodities. Coal was the "biggest problem", AAR said. US railroads loaded 15pc less coal last month compared with a year earlier, while year-to-date loadings were down by 14pc from the same 11 months in 2023. If coal were excluded, monthly US carload traffic in November would have notched a 10th consecutive year-on-year increase. Industrial products volume was down by 1pc from a year earlier. Manufacturing is a major driver of US carload traffic, and that sector remains sluggish, AAR said. By Abby Caplan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Australia's BOM forecasts severe cyclone season

27/11/24

Australia's BOM forecasts severe cyclone season

Sydney, 27 November (Argus) — Australia's Bureau of Meteorology (BOM) expects the country to experience 11 tropical storms over the next few months, threatening the country's mineral-rich Pilbara region and coal infrastructure in Queensland. The number of storms is in line with historical averages, but BOM warns that rising ocean temperatures could increase their severity. The state weather agency believes that four of these storms will make landfall from late December, and that a La Nina event could start later this year, although it may not last very long. La Nina events are associated with high levels of cyclonic activity. BOM's forecasts suggest that five of the storms are likely to form around Western Australia's mineral-rich Pilbara region, which houses more than 40 operating iron ore mines and two lithium mines. Over the last three months, sea surface temperatures around Pilbara have exceeded historical averages by 1.2–2°C, warming more than in any of the country's other cyclone-prone regions. On the other side of the country, four tropical storms could form around Queensland's cattle and coking coal producing regions, although these are likely to be less severe than the Pilbara storms. Temperatures across most of Queensland are forecast to exceed historical averages by 0.4–1.2°C in October-December. Cyclonic weather in Pilbara could disrupt iron shipping and mining activity in the region. Australia's three largest iron export ports sit along the region's coast. In 2019, Cyclone Veronica forced the closure of Pilbara's three major ports and multiple mines operated by mining company Rio Tinto, prompting the firm to cut its production forecasts for the year. Harsh storms in Queensland have previously damaged vital coal transport links in the state, hampering exports. In 2017, Cyclone Debbie damaged rail lines linking coal mines to the ports of Gladstone, Hay Point, Dalrymple Bay, and Abbott Point, which handle most of the state's coking coal exports. More recently, severe weather also halted deliveries to Mackay port . Queensland and Pilbara are also home to major LNG terminals at Dampier and Gladstone ports that sit within cyclone-prone zones. The two terminals together export over 3mn t/month of LNG . By Avinash Govind Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more