The enormous coking coal price rally of last year is starting to unwind

While iron ore spot prices continue to hover near multi-year highs, the same can’t be said for coking coal prices right now.

They’re plummeting, albeit after an enormous gain in the second half of last year, after a combination of supply disruptions within China and seaborne markets, reduced production levels in China, and a rebound in Chinese steel production put a rocket under prices.

The excellent chart below from RBC Capital Markets reveals the remarkable price action over the past six months.

What goes up must come down, right?

According to Fraser Phillips, Alexander Jackson and Wen Tian, analysts at RBC, the spot price for premium low-volatile metallurgical coal dropped by a further 14.9% last week to $US188.50 a tonne, extending its decline over the past four weeks to 26.1%.

“Seaborne metallurgical coal prices were lower this week on weak Chinese demand as there is sufficient inventory for mills and market participants continue to expect prices to fall in the near term,” the trio wrote in a research note released on Wednesday.

While coking coal prices are unwinding as supply shortages ease, it has little to no impact on spot iron ore markets, at least not yet.

The spot price for benchmark 62% fines (CFR, Tianjin) jumped by 3.2% to $80.10 a tonne on Tuesday, according to The Steel Index, extending its two day gain to 5.3%.

It currently sits near the highest levels seen in over two years.

Previously, some analysts pointed to strength in coking coal prices as a supportive factor for higher grade iron ore, noting that it allowed steel mills to limit their coke usage during production at a time when coal prices were elevated.

However, that doesn’t appear to impacting iron ore spot markets for the moment.

Continued restocking, driving Chinese port inventories to a more than two year high, along with optimism about a recovery in Chinese steel production following a relaxation of environmental curbs earlier this week, have been cited as two factors that have supported iron ore prices in recent days.

Chinese iron ore port inventories. Source: RBC Capital Markets

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