12-09-2016

Is coking coal heading for a potential meltdown?

caol

Looking at the recent prices of coking coal, one seems to be taking a rocket trip to the moon; there is only one way up.

The commodity’s price spike only happened within a short span of time, jumping from USD100/mt level in August to over USD150/mt in early September, zooming pass previous high of USD144/mt set in November 2013.

The only possible explanation of the surge is simply Chinese steel demand. Since start of the year, the metallurgical coal has been shaped by the fortunes and irks of the Chinese market along with its frequent production disruptions, government reforms and speculative papers trading.

The tight supply in China’s domestic market also helps to the lift the import of coking coals pushing seaborne prices higher, leaving us a question of how long can the commodity maintains its bullish run and prolong its fall.

The answer may lie in the steel mills located in China since they are the one that triggered the maelstrom in the first place.

“The (Chinese) mills do not have sufficient coal to use,” said one trade source based in China.

Thus in the bid to stock up metallurgical coal, the buyers are willing to pay higher prices especially the international steelmakers. For instance, many Indian buyers were caught short of supplies and went on a buying spree to stock up for October and November cargoes.

Perhaps as the demand in China waned, India may take over the mantle as the main driver for coking coal growth.

Dharmendra Pradhan, India’s minister of state, petroleum & natural gas told FIS that the government has a vision for 2022 to improve the country infrastructure bases.

“Under the Modi’s (India’s Prime Minister) administration, the country are aiming for three things, good housing, running water and power for all by 2022,” Pradhan said to a press conference held in Singapore.

Indeed, the providence of these basic necessities for nearly 1.2 billion populations is a gargantuan task but the potential demand of this scale may reduce the steel oversupply that was present in the market currently.

“In achieving these by 2022, the government seeks to deregulate prices in market and using market mechanism for our products.” he concluded.

Similarly, if coking coal is given much market freedom with less state intervention, the commodity will find itself growing at a much sustainable pace with less sudden upticks.

Source: FIS

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