Coking coal prices are starting to come off after reaching record, unsustainable levels on the back of shortages in China’s domestic market, agreed panel participants at Tuesday’s Eurocoke Summit in Amsterdam attended by Kallanish. However, the extent of the correction remains uncertain, as some expect Chinese steel output, which is currently declining, to rebound next spring.

Since China enacted its unofficial ban on Australian coal imports in summer 2020, Chinese coking plants have had to find alternative coal suppliers, which has created tight supply within China and lifted prices. Mongolia, initially touted as Australia’s replacement, has seen supply to China curbed due to infrastructure constrains and Covid-19. Chinese coking coal imports are expected to drop by 26 million tonnes on-year in 2021, said CRU metallurgical coke analyst Luke Peters.

This has created a lucrative arbitrage opportunity for coal suppliers from the US and Canada to sell at high prices into China, while Russian miners have also redirected tonnages there.

Australia, on the other hand, has very successfully found replacement markets to sell its surplus coal into, including India and traditional US coal markets Europe and Brazil, maintaining stable shipments in 2021, pointed out IHS Markit – Inside Coal senior analyst Ranjana von Wendland.

Trade patterns have therefore shifted, but global supply remains tight, seeing premium hard coking coal prices recently peak at $410/tonne fob Australia or $600/t cfr China. This has since come down to $390/t fob Australia, as Chinese coal demand has started tapering off due to steel production restrictions and power shortages.

Von Wendland termed this a “turning point”, adding that Atlantic coking coal buyers are holding off on 2022 purchases on expectations of further softening. Prices will drop further into the first quarter next year and settle at $150-160/t fob in the long run, she added.

H&W Worldwide Consulting principal consultant Dr. Neil Bristow however said coal prices should find some support. This is because Chinese steel demand could bounce back in March next year once the Beijing Winter Olympics and Lunar New Year holidays are over, with the Evergrande saga likely to be resolved by then. Moreover, India is a growing market that will need more coking coal, as will Brazil, while the EU, despite all its talk of green steel, will continue to need coke during its steelmaking transition.