London (Platts)--6Feb2013/1029 am EST/1529 GMT

US coking coal market participants attended the Coaltrans USA event last week and signaled cautious optimism that demand may improve this year, and prices had bottomed.

Benchmark coking coal prices in Asia at $165/mt FOB Australia for the first quarter of 2013 were a low in the cycle that is not likely to be sustainable, Arch Coal President and CEO John Eaves and Alpha Natural Resources CEO Kevin Crutchfield concurred on January 31 at the Miami conference.

The effect of mine production cuts in the US particularly and the cost of getting additional capacity to market for mines in the US, Canada and Australia has put prices on an upward trajectory for the rest of 2013, according to executives. (See related chart: Spot US low-vol FOB discounted against Australian Prem LV FOB).

Arch and Alpha Natural Resources saw more of a role for US coal in seaborne markets going forward, as domestic demand falls and steel demand fundamentals led by emerging markets longer term remain strongly supportive for raw materials.

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Xcoal Energy & Resources CEO Ernie Thrasher said he expected export volumes this year to stay strong. This was despite US exporters benefitting from stronger prevailing spot coking coal prices a year ago for term contracts.

Alpha, which is the US's biggest coking coal exporter, is interested in building its seaborne marketing to include thermal coal in the future, Crutchfield said.

One US mining participant mentioned Brazilian mills had procured a lot of high-vols at the end of last year for 2013. He said they had acted ahead of the curve as prices had since risen with limited quantities, especially for better quality high-vol A type material, available in the spot market.

One Brazilian group confirmed purchases in a mixture of six-month, quarterly and spot-based deals for mainly high-vol B coals with multiple US miners, with the aim to get its average pricing down. Current spot pricing of around $120/mt FOB for high-vol B was about right, a buyer at the Brazilian mill said.

A recovery in hot metal output in Brazil, and some improvement in steel mill operating rates in Europe were cited as supporting factors in the Atlantic. At home, US integrated steel production and cokemakers were said to be increasingly requiring better quality, high coke strength after reaction (CSR) coals.

A $175-225/mt FOB reference was discussed on the met coal buyers panel at the event for pricing going forward.

Today's spot prices are too low for US industry to be able to support, was one buyer's opinion.

Tata Steel Europe is buying more US high-vols and PCI as it is operating at 70-75% so there is less need for premium coals, said Mike Grim, vice president of Oremco, a procurement company owned by Tata Steel.

Steel prices continue to be low for the foreseeable future in Europe, putting less emphasis on quality low-vol hard coking coals and coke use. "We are buying more PCI from the US than ever before," Grim said.

He was part of a panel with Michael Hardesty, senior vice president for sales and commercial operations at SunCoke Energy, who stressed that demand for higher CSR coals was growing in the US.

SunCoke buys coking coals on an annual basis in partnership with steel mills that it supplies met coke to as part of a purchasing panel, Hardesty said. Tata Steel's Indian mills are looking into buying more US high-vols and other grades, and may procure more, in line with the group's European mills in the Netherlands and UK, Grim said.

In discussion around pricing indices and risk management, panel participants queried index accuracy and relevance based around data quality. Tata Steel was using indices in some of its coking coal contracts, Grim said.

Steel end-product and raw materials hedging through derivatives to lock in margins was still in its infancy, and Asia may lead developments that may later spread to the US, the panel highlighted.

Iron ore's recent price volatility, and its effect on steel margins rather than the impact on margins from coking coal was a worry for Mike Nobis, director of coal trading at DTE Coal Services.

--Hector Forster, hector_forster@platts.com
--Edited by Gareth Carpenter, gareth_carpenter@platts.com

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