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Coking coal prices top $350/mt as steel demand, supply uncertainty hits market

Platts latest Q3-2008 coking coal price assessments showed spot values gaining across the board for all varieties, compared to the previous quarter on the back of several record benchmark term contract agreements and continued tightness in the global metallurgical coal market.

Spot coking coal prices have increased every quarter in the past year.

Premium low-volatile hard coking coals from Queensland (See chart: Australia Queensland Coking Coal) and North America (See chart: Us Hamptons Road Coking Coal) were assessed at $350/mt and around $320/mt respectively for July to September, up from $320/mt and $285/mt in April to June.

Spot prices have moved up from the $300/mt April settlement between BHP Billiton Mitsubishi Alliance (BMA), the world's largest coking coal exporter, and Japanese steel mills for premium hard coking coals supplied under term contracts during the year started April 1.

Xstrata is said to have recently sold its Oaky Creek coal into Brazil and Europe for as much as $375/mt, the same price it is seeking under term contract negotiations that have yet to be finalized, according to several sources.

Xstrata said July 8 it couldn't confirm the company had settled hard coking term contract prices for the current fiscal year at $360/mt, as stated in a report.

Spot coking coal prices have increased every quarter in the past year (Dowloand podcast: Third quarter coking coal spot prices hit historic highs), as economic growth in Asia, Eastern Europe and Latin America requires more steel bars and sheets for use in construction, consumer appliances and automobiles, spurning demand for additional raw materials to meet the higher output from steelmakers.

The latest International Iron and Steel Institute figures from June 20 show world steel production up 5.8% year-on-year in May to 119.5 million mt, indicating strong demand and supporting coking coal and coke prices. Steelmakers have successfully raised product prices to maintain profit margins as they contend with the surge in iron ore and coking costs.

"The steel market being in excellent condition eases the way for raw materials to go along with it," said a source.

Hard coking coals from North America and Australia were assessed by Platts at around $100/mt in April to June 2007 and rose to $172.50/mt for Australian material in the January to March quarter of 2009 before surging past $300/mt as floods in Queensland curbed production.

The effect of the floods from January continued to disrupt production from the Bowen Basin, the world's biggest source of export metallurgical coal. BMA's operations as of June 24 were at 90% capacity and total production in the 2008 financial year is expected to drop by more than a tenth from a year earlier to about 50 million mt, BHP said.

Infrastructure constraints are also straining supply. The largest coal port in Queensland, Dalrymple Bay Coal Terminal, in May announced works to expand capacity to 85 million mt/year had been delayed by three months to the end of March 2009 because of bad weather.

North American producers are exporting more to cover the shortfall from Australia, with US seaborne exports estimated to grow 38% to 40 million mt in 2008 compared to a year earlier, according to AME Mineral Economics data.

Mining and infrastructure constraints may limit further export growth for the US, which also has a higher average cost of production than mines in Queensland, according to industry sources.

Next page: US coal now "a base blend component"

Created: July 22, 2008

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