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Chinese demand to boost global coking coal

Keywords: Tags  coking coal, Roy Hinkamper, KPMG, Cliff Smee, AME Group, Chris Drew, RBC Capital, Daisy Tseng

SINGAPORE — Riding on China, global coking coal demand is expected to improve in 2013.

The seaborne coking coal market experienced a steep price dive as demand dropped just as supply caught up following a number of years of project development on the back of high prices.

Spot prices for premium hard coking coal plummeted by 38 percent to $140 per tonne f.o.b. Australia in September from a high of $226.50 per tonne in June.

Things are looking up for producers, however, with a mild recovery in demand anticipated, as Asian countries—especially China—ramp up infrastructure projects.

"The real driver (for coking coal demand) is going to be Asian countries that want their infrastructure or construction projects to ramp back up, or other developing countries that would like to do the same," Roy Hinkamper, commodity lead for metallurgical coal at KPMG LLP, told AMM sister publication Steel First. "I tend to be more optimistic, so I don’t anticipate (demand this year) dropping more. I think at its very worst we’ll have a flat year, but I think it’s more likely that we’ll turn the corner and have an uptick, even if only a modest one."

Cliff Smee, senior commodity analyst at AME Group Inc., expects Europe to witness negative steel demand growth this year, while the United States will be stable. "I think everyone looks toward China," he said. "They are really the driver of the (coking coal) market."

In September, China’s National Development and Reform Commission approved 25 rail projects costing 700 billion yuan ($111 billion) as well as development and feasibility studies for 13 road projects across the country, followed in November by approval of further rail projects worth 49.47 billion yuan ($7.93 billion).

"We’re pretty optimistic that the Chinese stimulus spending will have an impact on (coking coal) prices, and I think that by the second or third quarter of this year we’ll see that impact," Smee said.

In addition, China is expected to take advantage of the current low prices. "I think with the prices we have at the moment you’ll see the Chinese stepping up and buying more, so their demand should be pretty healthy," said Chris Drew, analyst at RBC Capital Markets.

Most analysts expect the benchmark contract price of premium hard coking coal to move above $170 per tonne f.o.b. Australia from $165 in the first quarter but remain below $200 per tonne throughout the year.

Although the demand side of the equation seems able to help lift coking coal prices, Smee said that U.S. producers could be the game-changers this year.

"If U.S. producers can make the economics work (at current coking coal prices) and they continue exporting close to 50 million tonnes per year of coking coal, we’d see coking coal prices remain depressed throughout 2013," he said. 

A version of this article was first published by AMM sister publication Steel First.

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