Analysis: Met coal price spreads tighten between FOB Australia and China as demand rises

May 10, 2019, 8:44 pm | Admin

London — The rise in met coal prices in Asia-Pacific markets this week is also tightening relative price variations between FOB Australia and coking coal markets in China.

The rise in met coal prices in Asia-Pacific markets this week has tightened the spread between the FOB Australia and Chinese markets.

Demand for restocking to meet higher steel output in China and India may be leading the trend, with met coal supported by rising costs for iron ore and a move to use lower quality ores.

China and India boosted pig iron output in the first quarter of 2019 compared with last year's levels, with China's growth rate at 9%. A slightly weaker rise in early April steel output was reported by China industry group CISA.

The spread between lower-priced Premium Low Vol CFR China and comparable quality in China's domestic market narrowed to $16.88/mt as of Wednesday.

That was down from an average $24.542/mt for imports in April compared with domestic coal prices adjusted for comparisons on a CFR basis.

On Thursday, PLV FOB Australia was steady at $209.25/mt FOB, while PLV CFR China rose $2/mt to $210.50/mt CFR.

The spread between PLV FOB and the PLV CFR China netback to Australia FOB narrowed to $9.70/mt on Thursday, from April's average of just over $12/mt.

Tighter pricing between markets for benchmark grade coal may be viewed as a normalization after looser pricing relationships based on external trade and policy measures.

Curbs to steel production in China to lower air pollution during the country's winter, may have ended up more specific and targeted than earlier anticipated, and lifted coke consumption overall at compliant mills.

Trade restrictions in China and Turkey adding to costs for importing US coals, and lengthier delays for imports clearing customs in China, saw import prices lagging domestic prices in China.

Volatility in China's coke market after a steep market correction in March and price recovery since may be keeping domestic prices higher, with China's steel production growth this year adding to demand for imports.

To blend with domestic coals, buyers are keen to buy lower sulfur, lower ash coals, with phosphorous content also attracting more attention, according to suppliers.

Last modified on May 10, 2019, 8:45 pm | 2627