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Analysis: Asia's met coal spot trades inch up 1% on year to 57.7 mil mt in 2017 - Platts data

Singapore (Platts)--10 Apr 2018 534 am EDT/934 GMT


Seaborne metallurgical coal spot trades into Asia-Pacific in 2017 had inched up just 1% year on year to 57.7 million mt, as liquidity was crimped by almost 20 million mt of supply taken out of the market due to Cyclone Debbie in Australia.

Adding to this, China's reduced demand for imported coking coals due to the government's restrictions on steel and coke production as part of its drive for blue skies had also limited trade activities last year.

Overview of coking coal prices in 2017

Last year saw 768 Asia-Pacific spot transactions concluded for met coal -- comprising premium, second-tier, semi-hard, semi-soft coking coals and pulverized coal injection coals -- used for steelmaking, S&P Global Platts spot trade data showed.

Global coking coal volumesThis figure does not include cargoes sold into regions outside of Asia-Pacific such as Europe and South America. In 2017, Platts captured 827 deals globally, totaling 62 million mt.

The calculations are based on spot deals observed by Platts as part of its Market on Close assessment process. For every spot transaction that occurs, Platts records the counterparties, coal brand names, volume, laycan date, destination and other details that could affect the price of the cargo.

With credibility of information of utmost importance for price assessments, Platts has established the identities of both counterparties for 97.5% of all spot trades in 2017.
APAC 2017 coking coal volume by category
The Platts spot trade 2017 review measures transaction volume, rather than cargo volume. This means a single cargo can be counted more than once, as it trades repeatedly in the spot market before reaching the final end-user.

In 2017, premium hard coking coal accounted for 39.3% of the total Asia-Pacific spot trades, followed by second-tier hard coking coal at 24.4%, PCI at 22% and semi-hard and semi-soft coals at 6.4% and 7.8% respectively.


SUPPLY SIDE ISSUES DRIVE VOLATILITY


2017 was a pivotal year for the coking coal market, marked with significant developments and volatility. The year began with prices making a downward correction from the fourth quarter of 2016, when coking coal prices hit a five-year high after China imposed a 276 work day policy on its domestic mines.

While the Chinese government subsequently took a softer stance on domestic coal policy, declaring it would not make any more wide-scale cuts, the market still saw extreme volatility stemming from Cyclone Debbie hitting Australia's Queensland state in April, as well as the temporary closure of South32's Appin mine in May.

This was followed by the momentous move made by leading Japanese steelmaker Nippon Steel & Sumitomo Corporation away from pricing its premium coals on quarterly benchmarks to indexation.

The year closed on a high with the combination of prolonged vessel queues at Australian ports and force majeure declarations at major US ports causing supply tightness and driving up prices.

The number of spot trades declined in 2017 as steelmakers looked to secure more term contracts given the volatility in coking coal prices and supply concerns. Another factor was China's restrictions on the steel, coke and coal industries with winter production cuts from October 2017 to March 2018, as well as port restrictions on thermal and coking coal imports to South China.


PHCC, HCC TRADES


Premium hard coking coal 2017In 2017, traded volume for PHCC fell 9.56% year on year to 22.7 million mt. Australian exports had fallen 21 million mt to 171 million mt in 2017 due to the impact of Cyclone Debbie, according to a Goldman Sachs report published in 2018.

Traders were more active last year, with more miner-to-trader spot trade activity captured as compared to 2016, rising 4% year on year to account for 24% of all PHCC and HCC trades.

Of the PHCC and HCC trades, 63% were done to end-users. More end-users were actively trading cargoes as well, with trade activity involving end-users selling to traders rising 2% over the year to 3% of PHCC and HCC trades.

Such deals were more evident during Cyclone Debbie in April, when Chinese steelmakers capitalized on the global shortage of seaborne coking coal and resold their volumes to the rest of the world.

In the PHCC segment, BMA coals maintained its position as the most widely traded coals. In 2017, 61% of PHCC coals were from BHP Mitsubishi Alliance, or BMA, down five percentage points from the previous year.

Rio Tinto climbed five percentage points year on year to take second place at 10% of market share in 2017. However, Teck slipped five percentage points year on year to take up 9% of PHCC trades in 2017.

PHCC data includes semi-premium coal types such as BMA's blended products of Peak Downs North, Goonyella C and BHP blend which was introduced in Q4 2017.

With PHCC favored over HCC amid strong steel margins, the spread between premium and hard coking coals widened in 2017, rendering HCC a competitive option.

Hard coking coal 2017Traded volume for HCC rose 11.9% year on year to 14.1 million mt. Of the HCC trades, 56% were sold to end-users and 42% to traders.

Traders had a greater participation in the HCC segment, possibly as these types of coking coals sell well at Chinese ports, often at a premium compared with seaborne cargoes.

For HCC, Jellinbah overtook Peabody in terms of spot volume from a year ago, accounting for 36% traded.

BMA also increased its market share in the second-tier spot market, coming in second at 14%, up from 7% a year ago, by offering more of its tier-two coals such as BHP Mid Vol and Daunia in the spot market.

Amid strong steel margins and China's drive to take the most efficient coals, buyers had favored PHCC over HCC -- resulting in the widening of the spread between PHCC and HCC prices. The spread had widened to an average of $25/mt in 2017, from $14.50/mt in 2016 and $5.70/mt in 2015, Platts data showed.

The price ratio between these two types of coal ranged from 88%-90% throughout 2017, compared with a ratio of 91%-94% in 2016. Another factor was China's winter pollution-related cuts and restrictions on coal imports at southern Chinese ports towards the end of the year, greatly reducing demand for second-tier coals.


PCI SURGES


PCI spot trades grew 17.6% year on year to 12.7 million mt in 2017. A low price ratio to PHCC coals could have contributed to the higher spot trade volume.

Pulverized coal injection 2017The price ratio between PLV FOB Australia and Low Vol PCI FOB Australia was relatively low in 2017, compared with the previous two years. Low Vol PCI had averaged 64% of the PLV price in 2017, compared with 74% in 2016 and 84% in 2015, Platts data showed.

In the PCI segment, BMA and Peabody maintained their leaderboard position for the second consecutive year. But BMA emerged top in 2017 with 29% of PCI spot volume, followed by Peabody with 20% of total market share.

Combined traded volume of semi-soft and semi-hard fell 4.65% year on year to 8.2 million mt in 2017, due to a cutback in spot supply of semi-soft coals.

An industrial action in Australia lasting more than six months at major thermal coal miner Glencore, as well as the usual spike in thermal coal prices during winter, had driven thermal coal prices higher, resulting in miners prioritizing the sale of thermal coal over semi-soft.

Semi-hards on the other hand, continued to gain traction among emerging economies such as India, prizing it for its comparatively low price.


CHINA'S SHARE OF GLOBAL SPOT MARKET


China maintained its dominance in the global spot trade with 74% of the 62 million mt traded globally in 2017, up by 2.4 million mt from 2016.

Other Asian countries such as India, South Korea and Japan accounted for 18% of global spot trade, down four percentage points year on year. The remaining 8% were sold to Europe and South America, down four percentage points from the previous year.

China's met coal imports had risen 17.9% to 69.9 million mt in 2017, data from the country's General Administration of Customs showed.

Chinese steelmakers were continuously seeking coal with a low ash and low sulfur content to meet environmental regulations.

Furthermore, Chinese steelmakers were seeing robust profit margins, which helped support demand for premium coals.

The strong profit margins have only kicked in the second half of the year, according to S&P Global Platts Analytics. Profit margins in H2 2017 had averaged $125.80/mt for hot-rolled coil and $144.50/mt for reinforcing bar.

--Yi Le Weng, yi-le.weng@spglobal.com
--Elizabeth Low, elizabeth.low@spglobal.com
--Edwin Yeo, edwin.yeo@spglobal.com
--Edited by Irene Tang, irene.tang@spglobal.com

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