Seaborne metallurgical coal supply chains have largely reorganised in response to Beijing's ban on Australian coal imports, paving the way for increasing Australian exports of coking coal over the next two years, according to the Australian government's Office of the Chief Economist (OCE).
Australian metallurgical coal exports will increase from 172mn t in 2020 to 189mn t in 2023, according to the OCE's latest Resources and Energy Quarterly (REQ) released today. At the same time prices will increase, with the OCE revising up its average spot price to $160/t fob Australia for hard coking coal for 2022 from its March forecast of $142/t.
The OCE also upgraded its outlook for global metallurgical coal trade, largely because of increased imports by China supplied by stronger-than-previously-expected exports from North America and Mongolia.
As industrial production recovers outside of China, demand for metallurgical coal is likely to rebalance, narrowing the price differential between Australian exports and Chinese imports and adding revenue for Australian coal mining firms, the OCE said in its latest REQ. Demand is set to increase in India once the latest Covid-19 outbreak is controlled, as well as in Japan, South Korea and Europe over the next two and a half years, it added.
China is paying a premium to monopolise non-Australian supplies of metallurgical coal, but there may be limited capacity for Chinese steelmakers to continue to do so given restrictions on steel sales, according to the REQ. This is a risk to non-Australian metallurgical coal prices, with Chinese imports expected to start edging down in the second half of this year.
China has locked in supplies from Mongolia by upgrading rail connections, with higher-cost supplies from North America and Russia likely to be the first to be affected by any drop in Chinese imports. But China has run down stockpiles built up in early 2020 and may be required to import to replenish these, the June REQ said.
The OCE's 2021 average spot hard coking coal price forecast of $133/t fob Australia is higher than the premium hard coking coal price that Argus has assessed at around $129/t in the year to date for 2021, implying that the OCE expects stronger prices in the second half of the year. Argus last assessed the premium hard low-vol coking coal price at $182.50/t fob Australia on 25 June, up from a high of $107.75/t on 3 May.
| Australian government's coking coal forecasts | mn t | |||
| 2020 | 2021 f | 2022 f | 2023 f | |
| World trade | 298.5 | 314.8 | 324.4 | 336.8 |
| Exports | ||||
| Australia | 171.8 | 175.7 | 183.4 | 189.5 |
| United States | 36.8 | 37 | 31 | 29 |
| Canada | 32.1 | 35 | 36 | 36 |
| Russia | 22.4 | 24 | 24 | 32.3 |
| Mongolia | 23.9 | 30 | 33 | 33 |
| Imports | ||||
| China | 75.5 | 85.2 | 84.8 | 84.3 |
| India | 54.7 | 56.0 | 64.5 | 73.0 |
| Japan | 42 | 44 | 45 | 45 |
| European Union | 35 | 39 | 37.8 | 36.5 |
| South Korea | 33 | 32 | 31 | 33 |
| Prices | ||||
| Spot price expectation June update (US$/t)* | 128 | 143 | 160 | 149 |
| Spot price expectation March forecast (US$/t)* | 128 | 133 | 142 | 148 |
| Source: OCE | ||||
| f = forecast, *real in 2021 US$ | ||||
