Coronavirus impact on coking coal
Feb 06, 2020 | 02:25 PM
Coking coal prices have been steady so far since domestic supply constraints and disruptions to seaborne availability have been counterbalanced by demand-side weakness from lower steel output.
Supply and stocks
- Containment measures for the virus have delayed the restart of domestic China coking coal mines after the Chinese New Year holiday, curbing domestic availability.
- Supply from Mongolia, which sells nearly 100% of its export volume to China, is also anticipated to be constrained following restrictions on transportation along the border between the two countries.
- Seaborne supply also has been experiencing disruptions, including a roof collapse at Anglo American's Moranbah North mine in Australia. Supply from Teck Resources' Canadian operations also has been affected by logistics issues in British Columbia. Teck, the world's second-largest coking coal producer, has lowered its March 2020 quarter shipment guidance by 1 million tonnes.
Logistics since outbreak began
- China is one of the biggest buyers of seaborne coking coal, having made massive gains over the past year despite efforts by its government over the years to reduce imports and in the process support the domestic coal industry.
- These efforts have been reflected in unofficial curbs on imports imposed time and again at ports.
- Prior to the outbreak of the virus, curbs and their potential impact on seaborne coking coal demand from China had been a key focus. That focus has now shifted.
- The price gap between domestic coal and seaborne materials is a key deciding factor for coking coal procurement decisions; and with domestic supply expected to tighten, that gap is unlikely to narrow any time soon.
- Lower coke availability in the domestic market due to transportation issues and steel production cuts may weigh on Chinese demand for coking coal. For the ex-China market, this would imply greater availability of spot materials and hence lower prices.
Price since outbreak began
- Steelmaking fuel has been affected both by tight domestic coking coal availability and high transport costs (or a lack of transportation options altogether).
- One steel mill contact said it had decided to turn off two of four blast furnaces due to the lack of coke since steel product deliveries have been subdued by weak downstream demand.
- A buyer source from China said drivers carrying coal cargoes from mines in Shanxi and transporting to other provinces were being put under quarantine on their return, again constraining the logistics chain.