PCI price relativity to PLV climbs to a high

Opposing fundamentals in the Australian pulverised coal injection (PCI) market and premium low-volatile (PLV) coking coal market narrowed the price spread between the indexes. But it remains to be seen whether market conditions will continue to support strength in PCI prices.

Market fundamentals of the two products have been vastly different in the past two months, with a mismatch of firm demand and tight supply supporting PCI prices, while PLV continues to decline in an oversupplied market amid a persistently weak steel sector.

The Argus daily fob Australia assessment for low-volatile PCI increased by $25/t from 14 June to $205.50/t on 5 July, the highest level since 6 November 2023, before gradually declining to $185/t on 8 August. But PCI prices remain high, with July's average relativity to the fob Australia PLV index at 83pc compared with an average relativity of 61pc in the first half of this year.

Meanwhile, the Argus-assessed Australian PLV index has fallen by $47.10/t from 2 July to $212.50/t on 31 July, the lowest level since August 2022, before making a small recovery to $215/t on 1 August. Prices held steady for four days before inching down again to $213.75/t on 8 August in a subdued market.

Bottlenecks on Russian railways tightening Russians PCI supply and demand centered in south America, Europe and southeast Asia have contributed to stronger Australian PCI prices. "Russian supply definitely seems tighter than many expected, with a lot of term customers scrambling to bring forward or increase term allocations," an Australian supplier said. "The fob Australia PCI market is currently a seller's market. Buyers are trying to find out what cargoes are available but there are hardly any volumes that can be sold on the spot market as term buyers are still trying to increase term volumes."

Some buyers, particularly in northeast Asia, have also looked to reduce their reliance on Russian coal. "Because of growing US sanctions on Russian suppliers, some buyers are trying to increase their intake of Australian PCI, which is in short supply, so they may not have many options other than to pay up," an international trading source said.

But the switch remains unattractive for buyers with access to Russian supplies as they continued to express reticence towards the recent increase in Australian PCI prices. A northeast Asian buyer that was in the market for August-loading PCI eventually bought Russia-origin PCI at $165/t on a cfr basis on 23 July, noting its price competitiveness when compared with indicative offers of Australian low-volatile PCI at about $200/t fob at that time.

Expectations that PLV prices would fall further have prompted questions about whether current PCI prices can continue to remain firm. "The PCI market remains relatively tight, but if there are end-users in Europe or southeast Asia reselling premium hard coking coal cargoes, it means production is down and they will not need as much PCI as before," an Australian producer said.

"Effectively, PCI is a coke replacement, in that it reduces the amount of coke needed to make a tonne of steel," an international trading firm said. "So if PCI prices get too close to, or above, the other coking coal tiers, you would just make more coke and use less PCI."

Fob Australia PCI vs fob Australia coking coal $/t