A couple of months ago coking coal prices were looking like a beast, rising above the $US300 a tonne level for the first time in years, extending the gain from the lows seen in late 2015 to well over 300%.
It was an amazing, gravity defying move, propelled higher by a severe supply shortage in China.
The combination of reduced coal production in China, supply-chain disruptions both within China and in seaborne markets, along with a lift in Chinese steel production, proved to be a potent mix.
But now it appears that China’s coking coal crunch is over.
According to Macquarie Bank’s commodity research team, coking coal inventories are recovering, and as a result prices are now starting to fall.
“Chinese coking coal inventories have been rising and Mysteel’s weekly inventory survey of independent coke plants shows a particularly sharp rebound in stocks, the bank said. “They are now at 19.5 days of consumption versus a low of just 8.9 days in early September; the highest level since February 2015.”
Macquarie also notes that port inventories have also recovered, rising to the highest level seen June last week.
With the supply squeeze easing, the enormous price rally seen in the second half of the year is now starting to unwind.
“Increased supply availability and sequential consumption declines have led to a $US60 a tonne FOB Australia retracement in spot prices since the start of the month,” said Macquarie.
According to metal Bulletin, the spot price for premium hard coking coal (FOB) from Australia’s east coast fell by a further $US4.29 on Thursday to $US244.60 a tonne.
In its mid-year budget update released earlier this week, the Australian government said that after liaising with a range of industry contacts, there were widespread expectations that current coking coal price would not be sustained in the years ahead.
“The metallurgical coal price is assumed to be $US200 per tonne Free on Board (FOB) in line with the December 2016 quarterly contract price, before declining through the September and December quarters of 2017 to reach a level of $US120 per tonne FOB in the March quarter 2018,” it said.
Though it’s only early days, it appears that cautious approach to the outlook for prices was warranted.