Met Coke Consultants

Outlook Steel Coke Coal 2010

Published: February 28, 2010

Year 2008 was a watershed year where record economic growth started showing signs of recession resulting in downturn of GDP and with that strong decline in steel production. However, this time steel producers adopted early measures of selectively shutting down production facilities and bringing them in operation selectively as the demand rose in later part of 2009. The power point slides below are some of the slides reproduced from a presentation that R. Cecil of CRU-U. K. gave at Intertek-Pira Met Coke Conference, Pittsburgh, Oct. 2009. The slides are self explanatory. It is followed by current situation of steelmaking in USA and what is the coking coal outlook. In summary, one can say that the steel market is rebounding and user should get ready for tighter coking coal supply and higher coking coal prices both for domestic as well as global markets.

SITUATION IN USA – The picture of Steel Production is as follows: According to AISI, in the week ending Feb. 20, 2010, the adjusted year-to-date domestic raw steel production rose to 11,601,000 tons at a capability utilization rate of 65.8%.  This is 53.9% increase from the 7,540,000 tons during the same period of 2009, when the capability utilization rate was 43.9%.  Since early Dec. 2009, the price for domestic sheet has risen by 40% American Metal Market, 2/25/2010) and for most other products the price rose in Feb. 2010 compared to Jan. 2010 (exception of beam).  This is due to bare bone inventory with global-driven price).  Although the non-residential construction market remains weak, most other markets indicators show steel industry slowly recovering from the recession with demand and pricing improving in most sectors. Due to improved steel market conditions, some steel mills have restarted shelved mill modernization projects – e.g. Severstal NA. (AMM, 2/25/2010)

HOW DOES IT LOOK FOR COKING COAL? – Since many of the shut down blast furnaces have returned to production and some of the hot-idled coke plants are resumed to re-start production, the consumption of coke and PCI coal will increase.  In preparation for the increased coke demands, the coal contracts for domestic mills for 2010 were signed with mostly full tonnage requirements. This fact, coupled with rising global steel production, has led to increased global demand for coking coals. By year-end 2009, China imported 30 million tons of coking coal; some of it, for the first time, from USA. In anticipation of the increased demand of coking coal from China and India, the BHP coking coal prices are steadily rising. 

According to Metal Miner, Dec. 7, 2009, the Spot prices for coking coal already surged to about $175 per metric ton which could reach to $200 by 1st Qr 2010 (in 2008, the prices reached to $300). However, Bloomberg 2/26/2010 indicated that BHP Billiton may raise coking coal price to $240 a metric ton this year up from $129 a ton a year ago (per UBS AG report of Feb 18, 2010).  With this in mind, BHP is pushing for annual contract pricing to be based on spot prices rather than the traditional annual fixed price contracts that are set to renew in April for Asian, European and S. American markets. The iron producers are using the same tactic for iron ore pricing; the spot is $129 per metric ton 50% higher than 2009 benchmark price. With China planning 58 million new steel capacity expansion and India with 50 million new steel capacity, no wonder why some large steel producers are searching to acquire coal and iron ore mines (e.g. ArcelorMittal, Posco, SAIL, TATA, Jindal, etc). 

SUMMARY -  One can say that the steel market is rebounding and user should get ready for tighter coking coal supply and higher coking coal prices both for domestic as well as global market.

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