China coke duty removal may cut seaborne met coal demand: Brean Capital
London (Platts)--18Dec2012/752 am EST/1252 GMT
The lifting of the Chinese duty of 40% on met coke exports starting
January 1 is negative for the seaborne met coal market, based on replacement
by more coke from China, said Brean Capital.
Chinese coke "will be substantially cheaper than before" and Mongolian
met coal exports could rise into China, the New York-based investment bank
said in a report released Monday.
The move may replace seaborne coal demand to produce coke at captive and
merchant plants in coking coal import dependent countries such as India and
Brean Capital expects the net result of the measure could be a reduction
in seaborne coking coal demand of 15 million mt -- equivalent to around 5% of
the total global met coal seaborne market -- should Chinese coke exports
return to the 15 million mt/year level seen in 2007 pre duty imposition from
around 1 million mt.
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"We believe that met coal names stand to face lower overall seaborne met
coal demand on this confirmation of China's removal of the export duty," he
wrote on the impact to mining companies.
International met coal price have risen further than Chinese coke
prices, and therefore coke prices are not as expensive, providing incentives
to replace coal with coke, analyst Lucas Pipes suggested.
The hard coking coal benchmark has risen about 65% to the Q1 benchmark
of $165/mt FOB Australia since 2007, while spot coke prices in China are only
about 35% higher over the same period, he said.
"As seaborne coke prices have closely followed the seaborne met coal
price, we find that, based on our numbers, the spot export price of Chinese
coke has simply not kept pace," Pipes wrote in the note. "This would lead us
to believe instead that, on a relative basis, Chinese coke is not more
Brean Capital highlighted that prior to an increase in costs and the
duty, China exported roughly 15 million mt of coke in 2007, or almost 5% of
its annual production.
"As cokemaking requires roughly 1.4 tons of met coal to produce each ton
of coke, [a 14 million ton increase in exports] would potentially remove
nearly 20 million tons of seaborne met coal demand from the nations that
China's increased exports would be delivered to," it said.
Coke pricing pressure will likely affect coke producers in Japan,
Colombia, and Russia, while Asian steel mills could import Chinese coke and
the "currently weak seaborne met coal market could suffer."
Meanwhile, Chinese seaborne met coal demand may slightly increase
assuming that 25% of the extra Chinese coke production is supplied by
seaborne suppliers, adding 5 million mt in met coal demand for the 15 million
mt China coke export scenario, it said.
--Hector Forster, email@example.com
--Edited by James Leech, firstname.lastname@example.org