In Commodity News 07/05/2015
Asian steelmakers are stepping up the hunt for high-fluidity coking coals, after a series of mine closures have left this segment of the market tighter than others, market sources have reported in recent months.
A certain level of fluidity is widely seen as a requirement in producing good quality coke, and blends tend to have an average maximum fluidity of about 800-1,000 ddpm (dial divisions per minute).
With many Australian hard coking coals in the 50-1,000 ddpm range, mills often have to include in their blends specific higher-fluidity coals to reach their blend targets.
But a number of mine closures in the last year or so have tightened supply of such coals, an Australian miner said.
“Key changes started last year with the closure of [Vale] Integra and [BMA] Gregory open pit [mines], and the ceasing of coking coal production from [Glencore Xstrata] Collinsville.”
“In Q1 2015, the [Anglo American] Dawson production and rail issues, the closure of [Teck] Cheviot mine in Canada and teething issues with [Rio Tinto] Kestrel production and quality as they ramp up in Kestrel South really tightened supply of high fluidity coal,” he added.
These production cuts have left Asian mills with fewer options on the fluidity front.
Among the remaining brands with 2,000 ddpm or above are Kestrel, Gregory, Glencore Xstrata’s Oaky Creek and Tahmoor, QCoal’s Sonoma Classic, Yancoal’s Stratford, Mechel’s Elga in Siberia, and a few Russian brands from Sibuglemet and Suek.
Elsewhere, the US produces a lot of high-fluidity high-vols but supply to Asia has reduced in recent months, leaving some Japanese and South Korean steelmakers with a growing need for such coals, two miners agreed.
In the Atlantic too, European mills have felt the effects of tighter supply for high-fluidity coking coals. Specifically, a tightening of Australian premium mid-vols since Q3 2014 has led to greater appetite for US-origin high-vol A, sources said.
PRICE IMPACT
This global trend has helped a range of higher-MF coals achieve better prices relative to their peers in recent months, both in long-term contracts and in the spot market.
Perhaps most notable was the fact that Kestrel and other high-MF Australian coals achieved a smaller price reduction than any other product category in the April-June quarter negotiations in Japan, narrowing the gap to hard coking coal by more than $2/mt, several sources said.
“They’ve closed the gap [on hard coking coals] because fluidity is hard to get,” a met coal producer said Wednesday.
More dramatic is the reversal of the spread between US low-vols and high-vol A. Historically, US low-vols have traded at a premium to high-vols, a trend which came to a halt in late Q3 2014.
In the last month and a half, that premium has jumped to almost $10/mt, from $1/mt previously, Platts data shows.
In the spot market meanwhile, high-vols like Kestrel, Gregory and Elga have tended to trade at roughly $5/mt below Rangal-type HCCs such as Jellinbah’s Lake Vermont.
This spread has fluctuated over time, but now appears to have tightened, or like in the US, even reversed in some cases.
A couple of Indian steelmakers expressed a willingness to pay parity or even slightly higher than Rangals for Gregory or Kestrel.
“I’m willing to pay $1-$2/mt premium to second-tier HCC,” an east Indian steelmaker said.
Furthermore, sources observed that the short supply was encouraging steelmakers to scour for other sources of high-fluidity coals.
“Indian mills want diversification. That’s why there’s so many people asking for [coals from] Mozambique, from Russia,” a major miner said, adding that he has received many inquiries for a particular high-fluidity brand his firm markets.
However, Asia’s largest spot buyer China does not have such acute hunger for fluidity due to abundant domestic availability, meaning that selling into this country tends to be less rewarding for producers.
Nonetheless, miners have routinely cleared excess tons in China, and cargoes can usually be seen sold every month into China. But highlighting recent tightness, April was an exception, marking the first time since December 2013 that no deal for neither Gregory nor Kestrel was reported agreed in the month for shipment to China.
OUTLOOK
Market sources were rather split on the outlook for high-MF coals, and perhaps predictably mills downplayed the potential for this tightness to remain, while producers were more bullish.
“I don’t think it’s here to stay. Relativities have been shaken up temporarily with recent price falls, but should settle back down to normal,” a Singapore trader predicted.
A major Asian mill agreed, saying that coals like Gregory and Kestrel “lacked strength,” and should naturally be priced below the Rangals.
But the fate of high-MF coals could greatly depend on major changes on the supply side, chief among which is the upcoming closure of Gregory-Crinum in the next year.
In a little-reported statement, BMA confirmed on April 24 that it would “shortly” cease mining on its last development panel in preparation for final coal at Gregory-Crinum mine.
The miner has been unwilling to provide exact dates for the closure, but contract customers said they expect to continue to receive coal until Q1 2016.
Gregory-Crinum is a sizable operation, and its closure is likely to be welcomed by other high-MF producers.
BMA produced 3.45 million mt of Gregory in 2014, and 607,000 mt in Q1 2015.
The situation will get “even more interesting” with the impending closure of Crinum, a producer of high-MF coals commented.
He also highlighted the potential sale of Dawson, and “even further reduced competitiveness for US coals in this declining market” could be other supportive factors for this resurgent market segment.
