In a new report, Coking Coal: Prices Have Peaked, But to Remain Elevated on the Resumption of Exports to Mainland China, Fitch Solutions provided its analysis of the metallurgical coal market. The firm’s analysts revised their Australian coking coal price forecast for 2023 from $300 per metric ton (mt) to $350/mt, saying they expect price support to stem from the resumption of imports from China. Coking coal prices have declined dramatically from their brief war-induced high of $635/mt in March 2022 and are currently hovering around $346/mt.
“We expect coking coal prices to remain elevated around current levels in 2023, but see limited increases above these levels,” Fitch Solutions said. “Despite stronger steel production growth in India, the second largest importer, coking coal imports from Australia will remain on the decline as India boosts domestic production of coking coal. In Japan, the largest importer of Australian coking coal, steel production growth will remain muted in 2023. These issues will place a cap on coking coal price strength, preventing any rise to the highs of 2022.”
On the supply side, the firm said the easing of the bad weather and strikes that led to a decline in export volumes in 2022 will support production growth in 2023, improving seaborne supply and limiting price growth. For the longer term, they expect coking coal prices to remain on a downward trend, as global blast furnace steel production slows on the back of the transition to a greener economy. “Nevertheless, prices will remain high by historical standards from 2024-2027,” they said.
China’s largest steel producer, China Baowu Steel Group, was the first to order Australian coking coal in 2023, as improved bilateral relations between Mainland China and Australia saw the former lifting restrictions on coal imports from the latter in January 2023. This first shipment of 72,000 mt of Australian coking coal was set to arrive on February 8 at Zhanjiang Port, according to Fitch Solutions.
On February 6, JFE Holdings, Japan’s second largest steelmaker, lowered its crude steel production guidance from 25 million mt to 24 million mt in 2023, citing weak domestic demand and delays in export markets. Elsewhere in India, despite strong steel production growth of 5.8% y-o-y in 2022, Australian coking coal imports to the country declined by 15% y-o-y as cheaper coking coal from Russia, Mozambique and Indonesia gained market share.
In 2023, Fitch expects India’s steel production growth to come in at 6% y-o-y, but Australian coking coal imports to the nation to remain muted as domestic coking coal production increases and steel producers continue to prefer cheaper imports.
On the supply side, Fitch said Australian coking coal production growth would improve slightly in 2023, keeping the seaborne market better supplied than 2022. While Australia was the largest coking coal exporter in 2022, its share of global exports fell by 8% y-o-y due to bad weather and higher prices compared to other exporters. The La Nina event in the country led to heavy rains in the mining regions which affected operations, leading to supply disruptions. In addition, strikes by mine workers and unavailability of labor weighed on production. Meteorologists believe 2023 will be a drier season for Australia’s coal industry.
In the longer term, Fitch said it expects coking coal prices to decrease in tandem with global blast furnace steel production growth. As the global economy makes its shift to a ‘greener’ future, the shift away from fossil fuels and highly polluting methods of production will see steel producers slowly transition to cleaner steelmaking processes. These include a greater adoption of electric arc furnaces as well as the use of green hydrogen in steelmaking. This paradigm shift will reduce the need for coking coal in the production of steel, hampering the fossil fuel’s long-term demand and price outlook.
Although Fitch is forecasting coking coal prices to trend lower over the coming years, they expect prices to remain high by historical standards over 2024-2027, as prices will now start from a higher base following the Russian invasion of Uktaine. Fitch has forecast an average price of $272/mt over 2024-2027, compared to the estimated 2019-2023 average of $248/mt.
