The resumption of halted operations at coking coal mines in the US comes amid signs of potential improvements in demand. But buyers and producers are still uniformly cautious about recovery for the rest of 2020.
A number of US mining firms, including Arch Coal, Ramaco and Coronado have withdrawn their production guidance for this year, largely because of uncertainty over market conditions. A production disruption at Coronado's Curragh mine following a fatality also led to the withdrawal of its 2020 guidance.
US mining firms will continue to seek to reduce costs in 2020 amid uncertainty over global steel capacity. While this may be possible for low cost producers at around $60-70/short ton (st), firms with significantly higher cost structures are expected to struggle.
US coking coal spot prices for third quarter shipments have recovered from the year-to-date low they reached at the end of April, when producers facing high inventories offered heavy discounts on June shipments to support their cash positions. The daily Argus fob Hampton road high-volatile B price fell to $99/t at the end of April, the lowest since August 2016, but has since recovered to $105.50/t fob Hampton Roads. The temporary Covid-19 linked mine closures in March and April offered some mines the opportunity to run down their high inventories.
Steady iron ore prices will remain a cost pressure for mills and affect their appetite for higher coal prices. Any decline forecast by producers and buyers is at a very conservative $75/dmt.
The Argus ICX 62pc index rallied to $91.45/dmt cfr Qingdao on 13 May, after reaching a year-to-date low of $79.55/dmt in mid February. But with mills keeping their coke ovens running, coking coal demand is comparatively stronger, with buyers delaying or rolling over shipments instead of cancelling cargoes outright as they have done with iron ore shipments. Europe could send an estimated 500,000-600,000 t/month of high-grade Atlantic pellet to China after EU steel producers announced cuts to about 20pc of their 87mn t/yr hot metal production by late March. While some mills have issued force majeure on their term contracted coking coal imports, they have followed up with spot purchases to fulfill demand.
"They have almost been buying on the fly to keep their coke ovens running. So the demand is there but it makes it difficult for anyone to do any planning," one miner said.
Keeping US firms operational for supply security and to limit reliance on Australian coal is in the interests of European mills, but with their own survival at stake, their ability to keep US firms afloat is restrained. The granting of tariff exemptions for the import of US coals into China earlier this year threw a much needed lifeline to some US firms already struggling from reduced European demand for most of 2019. The US shipped 202,000t of coking coal to China in February, up by 55pc on the year. But Chinese mills cut output in February as their steel inventories reach record highs during the Covid-19 outbreak in the country, leading to a sharp decline in US coking coal exports to China — to 130,000t in March. There are also concerns over the outlook for Chinese coal imports despite China's recovery. China's state-backed coal transportation and distribution association, CCTD, is calling on the government to tightened restrictions on imported coking coal, as lower seaborne prices make it increasingly difficult for domestic producers to remain competitive.
Australian producers have implemented Coronavirus related safety measures at their mines, but there is little expectation among market participants that falling prices will result in coking coal production cuts in the country. Australian mining firms have lower production costs and enjoy greater proximity to Chinese buyers. The weakness of the Australian dollar this year has also added to the cost advantage Australian producers have against their US counterparts.
By Siew Hua Seah