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Interview: Hector talks met coal pricing and market reactions to industry disruption

Interview: Hector Forster, Team Leader, Platts

Interview: Hector Forster, Team Leader, Platts

What is the current state of met coal markets and pricing, and the impact for Polish and other central European, CIS producers?

Global steel raw materials markets are depressed due to overcapacity and weakening China import trade along with low global steel and commodity prices.
The hard coking coal benchmark for Q2 2015 at $109.50/mt FOB took industry by surprise, implying prices have weakened further since last year. The stronger US dollar and weak demand pushed premium low-vol spot prices below $100/mt FOB Australia in March.
The stronger US dollar led European buyers to prioritize purchases from Polish, Czech and other regional sources of coal and coke.
Some geological issues in Silesia limited production of certain grades, and there remains demand for miners and traders supplying seaborne premiums coals.
Further, low sea freight is aiding options and Colombian and US coals, along with Australian origins are competing for markets. Mozambique coal imports are also seen into Polish ports. Buyers have plenty of offers and European miners need to cut costs and follow.

How has the Ukraine situation affected met coal markets?

Ukraine has been a focal point of trade disruption and opportunistic inward flows, much of it benefitting Russian, Polish, Chinese and US met coal and coke suppliers.
Ukrainian steel output depressed, and operational volatility has limited overall demand, with bartering ongoing.
Ukraine has ceased to be a coke exporter, benefitting Poland, Hungarian, Czech and other producers.
Russian mining costs have plunged with the ruble’s fall, helping Russian miners ship more PCI, coking coal grades and coke into Ukraine and the rest of Europe. 

What are other trade developments seen for met coal, with regards to pricing?

Prices are low amid oversupply, reducing incentive to fix prices.
This has aided a trend to procure more coals on a spot basis. There is further interest in expanding or switching to spot purchasing or using spot pricing, especially from steelmakers looking to lower their costs.
There has also been a growing prevalence and usage of index-fallback clauses globally, where counterparties default to a spot index if they fail to agree a price. Mills have increasingly tried to make spot or index purchases a part of their procurement portfolio. Australian FOB and US FOB indices are seen widely in use by European market participants.
Nonetheless, one-year fixed price deals are still being signed NWR and US miners, while others have opted for shorter terms, including monthly pricing.
Polish and Czech coal miners are seeking to boost trading opportunities, and they may offer more blends, or alternatives to customers to provide new flexibility. 

How did the markets react to the strike at Jastrzebska Spolka Weglowa?

The US acted as a swing supplier, and several vessels were dispatched to make up the shortfall of coal from JSW, with some further movement from inventory for coal and coke across Europe.
The incident may have served to remind price sensitive European buyers of the reliability of supply and quality of US coals, and perhaps encouraged more security of supply from across the Atlantic.
JSW coke production was 1.09 million mt in 2014 and this is expected to be stable for 2015.
External coke sales by JSW rose 19% to 1.22 million mt in 2014.
Knurow-Szczyglowice coal mine acquisition proves to be an exciting growth driver for coking coal, with JSW running in Q4 2014 at an annualized rate close to 12 million mt/year.
JSW sees more diversion likely around its coking coal sales prices and reference prices.

What is the regional outlook for coke demand and export growth?

The seaborne coke market grew by 32% in 2014 to 12.7 million mt from the year earlier, according to Platts data. Much of it has been fuelled by a surge in Chinese coke export volumes to 8.6 million mt in 2014.
Chinese coke is making headways into most regions and Europe is not an exception. As Ukraine was a key seaborne exporter in the EU region, unless there is any major change in the situation in Ukraine, the EU region appears to be coke short in the near-term. 
Low global coke prices see the Indian reference import price at $179/mt CFR and Chinese at $166/mt FOB as of March 23. Demand in Europe, and Brazil’s reliance on Chinese and Colombian coke, may limit export trade opportunities for Polish coke outside the region.

This content is provided by Coaltrans Conferences for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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