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Coking coal prices steady after stellar 2009 rebound amid Q3 contract talks

by Hector Forster

May 12 - Coking coal prices just over a year ago had slid to less than a third of their mid-2008 peak only six months previously as customer orders for steel dried up in the grip of the global credit freeze.

Since then, prices have steadily tracked back from nudging $100/mt in early 2009 to exceed the current quarterly benchmark of $200/mt by about 20%, boosted by China’s new thirst for imported coking coal where volumes in the first quarter tripled on the year-earlier period.

“If the financial crisis never happened it would have just gone up and up,” a source at a coal producer said of the prices. “The financial crisis blew a hole in the market but there was no change in the trend,” he said.

China’s imports of coking coal excluding anthracite leapt to 10.9 million mt in Q1 2010, more than tripling on the 3.44 million mt in the year-earlier period when overseas purchases initially took off.

A recovery in steel output by mills in major coal importing countries has further tightened the balance.

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World Steel Association figures show crude steel output in the European Union, Japan, South Korea, Taiwan and Brazil rose to about 95 million mt in Q1 2010, up from 67 million mt in Q1 2009, with the balance, assuming a coal use ratio of 0.6 tons to 1 ton of crude steel, adding a further 16.8 million mt in coking coal demand.

Worldsteel said April 20 that global apparent steel use will increase 10.7% to 1.2 billion mt in 2010 led by China and other emerging economies, exceeding pre-crisis levels from 2007 and reversing 2009’s 6.7% contraction.

The steel demand recovery is “not only earlier but also stronger than expected,” said Daniel Novegil, chairman of the World Steel Association economics committee.

Government stimulus packages and recent inventory restocking drove the increase, he said.

However, Worldsteel warned May 7 that “the recent unprecedented rises in the price of iron ore and metallurgical coal pose serious problems for the margins of steel companies and their customers and risks accelerating inflationary pressures in the economies of many countries.”

Coking coal prices in the spot market have stabilized after recent rapid gains but with some downward pressure.

The impact of a port shutdown in March that cut coal supplies receded while buyers in China were heard reticent to pay higher values on lower steel-related markets in China and some fiscal tightening. This was despite recent strong import data.

In the Atlantic market, an April 5 explosion at Massey Energy’s Upper Big Branch mine curtailing high vol supplies served to boost domestic US prices and further reinforce improving fundamentals on higher mill operating rates.

But US export trades and offers didn’t suggest prices had yet moved up significantly, only confirming ranges heard for April.

This was despite high vol offers where available rising as a result.

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