Met coal outlook improves significantly

Against most analysts expectations contract metallurgical coal prices have fallen sharply this year.

The quarterly contract price for Western Canada’s premium-grade hard coking coal bound for Asian markets fell from $172 a tonne in the second quarter of this year to about $145 in Q2 according the Scotiabank’s commodities index.

That’s in line with Australian export prices with latest spot Queensland FOB price for coking coal destined for Japan – the world’s number one importer of coking coal and second-placed steel producer – of $137 representing a decline of almost 20% over the past six months.

The situation has deteriorated to such an extent that Mongolia is considering recalling its parliament, currently enjoying summer recess, for an emergency session to counter an impending crisis brought about by sliding coal prices and uncertainty over new investment in its massive Tavan Tolgoi met coal mine and the Oyu Tolgoi copper-gold project.

But now some are predicting that the slide in prices have reached a bottom and with limited new supply of high-quality coking coal on the horizon, sentiment should improve from here on out.

Platts reports Asian demand is gaining in strength as Chinese mills restock and a pick-up in spot prices in August after the dismal second quarter:

While most steelmakers were still not admitting a willingness to paying above $155/mt CFR China for Australia’s top low-vol brands, a couple of large state-owned mills appeared prepared to come closer to $160/mt this week, with one saying that even above $160/mt might be acceptable.

Latest research by investment bank Macquarie argues that “the lack of supply growth potential sets coking coal apart in the bulks,” and that the commodity’s medium-term norm is around $180 tonne. Nevertheless, the firm expects Q4 contract prices to stay below $150 a tonne before picking up to reach around $200 by 2015.