China is pushing metallurgical coal up

Coking coal at the beginning of the year, in contrast to energy, is growing in price both on the world and domestic markets. World prices are pushing up expectations of easing the Chinese embargo on coal imports from Australia. Inside Russia, prices are rising on the back of higher MET and railway tariffs. At the same time, possible floods in Australia may prevent local coal companies from increasing supplies to the world market, which, according to analysts, will support coking coal prices in the first quarter.

World prices for coking coal reacted with growth to the possible cancellation by the Chinese authorities of an informal ban on the import of Australian coal. As follows from the MMI review for January 2-8, 2023, the cost of premium low-volatility coal in early January exceeded $300 per 1 ton on an FOB Australia basis. After the stabilization of Australian coal quotes in late November – the first half of December, their significant growth has been noted for the last two weeks, and quotes have already returned to the level of early November.

Talks about lifting the ban on Australian coal imports to China began after a meeting between the foreign ministers of the two countries, where, among other things, the topic of removing trade barriers was discussed.

China’s three state-owned energy companies, China Datang Corp., China Huaneng Group Co., China Energy Investment Corp., and steelmaker China Baowu Steel Group Corp., reported Platts. received proposals from the government to import Australian coal.

According to industry experts, China’s relaxation of Australian imports will have a greater impact on the metallurgical coal market.

Chinese consumers of thermal coal are heavily oriented towards medium and low calorie coal, and significant substitution of Indonesian and Russian coal for more expensive Australian coal is unlikely in these segments, writes MMI.

Global thermal coal prices are now on the decline amid fears of a reduction in industrial activity in China as a result of rising COVID-19 infections, reduced demand in Europe due to warm weather, increased coal stocks in the EU and lower gas prices. Thus, export prices for thermal coal in December in the eastern ports of Russia decreased by 8% mom, to $161 per 1 ton (FOB Vostochny, 6000 kcal), and in European ports – by 5.4%, to $130 per 1 ton (FOB Taman, 6000 kcal).

At the same time, domestic prices for coking coal in China are growing, and the yuan is strengthening against the dollar. In such a situation, end-users and traders will be more inclined to buy imported coal, which may keep its quotations at relatively high levels in a situation of gradual and targeted easing of the ban on Australian coal imports, analysts say.

In Russia, coking coal is also becoming more expensive – a significant weakening of the ruble since the end of December and an increase in the severance tax expected from January pushed prices up from 7810 rubles. up to 8860 rubles. per 1 ton of medium coal charge based on FCA.

An additional factor for domestic consumers was the growth of Russian Railways tariffs for coal transportation.

It is likely that world prices for coking coal will remain at a high level in the first quarter of the year. According to Gazprombank’s CEP, the La Niña weather event will negatively affect the export of coking coal from Australia until the end of March 2023, as it contributes to increased precipitation and increases the likelihood of major floods. In China, against the backdrop of outbreaks of COVID-19, coal miners were forced to suspend the operation of their mines, which creates the risk of a shortage of metallurgical coal in the first quarter of 2023.

Evgeny Zainullin