Coking Coal Supplies Tighten Further
CAPE TOWN, South Africa -- Severe and widespread flooding several weeks ago in Queensland – Australia’s main coal producing region – sent shock waves through the already under-supplied coking coal market. Prices briefly ratcheted up to what some termed hysterical levels. They have since retreated and normalized to a degree, but there will be long-term effects that will leave some steelmakers very hard pressed.
Coking coal (also known as metallurgical coal) is essential for making steel using conventional methods to melt iron ore. A majority of the world’s steel could not be made without such coal, which is relatively rare compared with the steam (thermal) coal typically used in heating and electricity generation. Coking coal was already in tight supply prior to the flooding in Queensland.
Lost coking coal production in Queensland meanwhile could exceed 15 million tonnes, a shortfall that cannot quickly be remedied, according to Gerard McCloskey of McCloskey Group, who spoke last week at the annual Investing in African Mining Indaba conference here. Additional supplies are coming from previously untapped or underutilized sources, he said, but added that new export restrictions in some countries will nullify some of these gains.
The situation is far worse than three years ago, when flooding also affected Queensland coal production. At that time (February 2008), the tonnage lost is estimated to have been only 5-6 million tonnes, McCloskey said. On the other hand, the effect on the recent floods appears to have more than counterbalanced fears of a slowdown in Chinese coal demand
“Can Australia and the rest of the coking coal market make up the lost tonnage in the balance of the year? The answer is: no,” McCloskey said. “Some people will not be able to make steel because of what is happening in Queensland,” he stated.
In an attempt to close the supply-demand gap, new coking coal sources are being developed and existing production is being exported in greater quantities from Indonesia, Russia, Mozambique and Mongolia. Even Colombia exported a small amount of coal (10 million tonnes) to Asia last year, McCloskey said. Infrastructure upgrades may make some regions more viable as exporters. In particular, planned rail links may soon access remote Russian and Mongolian supplies. Meanwhile, South Africa, Indonesia and China have instituted or are considering coal export restrictions in order to ensure supplies to their own steel sectors.
In 2011 Canada and Mongolia will export a little bit more than usual. US producers also will export more, but these will generally be poorer quality coals (for blending) that are normally sold into the domestic steam coal market, McCloskey said. This year also will likely see a major surge in US port activity, including development or expansion of coal loading facilities on the Columbia River and at Cherry Point in Washington state; expansions in the Mid-Atlantic region at Lamberts Point in Virginia, and Baltimore, Maryland; plus the addition of Nova Scotia in eastern Canada as a loading point, he added.
US producers have steadily expanded coking coal exports in recent years, from 37 million tonnes in 2009, to 55 million tonnes in 2010. This year, US exports are forecast to reach 65 million tonnes. much of which will be in the form of relatively low grade blending coals. These factors will help to restrain prices.
China and India will continue to be major importers of coking coal, McCloskey said. This will happen despite plans by US coal producer Peabody Energy to help develop coal reserves in the Xinjiang region of far northwest China.
“I believe China has a major problem with its hard coking coal reserves. The boys in Shanxi Province, who produce the bulk of (China’s coking) coal, say future growth will all come from Xinjiang,” McCloskey said.
The region produced 86 million tonnes last year but has the potential to ramp up to a billion tonnes annually by 2020, McCloskey said, citing Peabody. The remoteness of the region could be a problem, however, he added.
“Industry will move (to Xinjiang); the coal will not move to the coastal provinces. (But) 75% of steelmaking in China is on the coast. I do not see Xinjiang having sufficient infrastructure to provide the 550 million tonnes of coking coal that China now consumes (annually) … so I see that China stays as a big importer going forward,” McCloskey said.
Price expectations and reality
The pricing panic that broke out in relation to the Queensland floods has now subsided, and coking coal prices have corrected for the most part, McCloskey said. Also acting to restrain prices, he noted, is the fact that underlying steel prices are nowhere near the levels they reached during the in early 2008 Australian flooding.
“People who talk about $400/tonne coking coal prices—well, take it with a pinch of salt,” McCloskey said. Even so, prices for poorer-quality US blending coals have risen by about $100/tonne over the past month, he added.
“We were already going to have a difficult year even before the Queensland flooding. Most people have solid long term contracts. … Anyone who’s tendering I believe is not going to get their tonnages. It’s just impossible,” McCloskey said.
Brett Hartke is a contributor to ResourceInvestor.com who has more than 20 years of experience researching and writing about commodities and the metals markets.
CAPE TOWN, South Africa -- Severe and widespread flooding several weeks ago in Queensland – Australia’s main coal producing region – sent shock waves through the already under-supplied coking coal market. Prices briefly ratcheted up to what some termed hysterical levels. They have since retreated and normalized to a degree, but there will be long-term effects that will leave some steelmakers very hard pressed.
Coking coal (also known as metallurgical coal) is essential for making steel using conventional methods to melt iron ore. A majority of the world’s steel could not be made without such coal, which is relatively rare compared with the steam (thermal) coal typically used in heating and electricity generation. Coking coal was already in tight supply prior to the flooding in Queensland.
Lost coking coal production in Queensland meanwhile could exceed 15 million tonnes, a shortfall that cannot quickly be remedied, according to Gerard McCloskey of McCloskey Group, who spoke last week at the annual Investing in African Mining Indaba conference here. Additional supplies are coming from previously untapped or underutilized sources, he said, but added that new export restrictions in some countries will nullify some of these gains.
The situation is far worse than three years ago, when flooding also affected Queensland coal production. At that time (February 2008), the tonnage lost is estimated to have been only 5-6 million tonnes, McCloskey said. On the other hand, the effect on the recent floods appears to have more than counterbalanced fears of a slowdown in Chinese coal demand
“Can Australia and the rest of the coking coal market make up the lost tonnage in the balance of the year? The answer is: no,” McCloskey said. “Some people will not be able to make steel because of what is happening in Queensland,” he stated.
In an attempt to close the supply-demand gap, new coking coal sources are being developed and existing production is being exported in greater quantities from Indonesia, Russia, Mozambique and Mongolia. Even Colombia exported a small amount of coal (10 million tonnes) to Asia last year, McCloskey said. Infrastructure upgrades may make some regions more viable as exporters. In particular, planned rail links may soon access remote Russian and Mongolian supplies. Meanwhile, South Africa, Indonesia and China have instituted or are considering coal export restrictions in order to ensure supplies to their own steel sectors.
In 2011 Canada and Mongolia will export a little bit more than usual. US producers also will export more, but these will generally be poorer quality coals (for blending) that are normally sold into the domestic steam coal market, McCloskey said. This year also will likely see a major surge in US port activity, including development or expansion of coal loading facilities on the Columbia River and at Cherry Point in Washington state; expansions in the Mid-Atlantic region at Lamberts Point in Virginia, and Baltimore, Maryland; plus the addition of Nova Scotia in eastern Canada as a loading point, he added.
US producers have steadily expanded coking coal exports in recent years, from 37 million tonnes in 2009, to 55 million tonnes in 2010. This year, US exports are forecast to reach 65 million tonnes. much of which will be in the form of relatively low grade blending coals. These factors will help to restrain prices.
China and India will continue to be major importers of coking coal, McCloskey said. This will happen despite plans by US coal producer Peabody Energy to help develop coal reserves in the Xinjiang region of far northwest China.
“I believe China has a major problem with its hard coking coal reserves. The boys in Shanxi Province, who produce the bulk of (China’s coking) coal, say future growth will all come from Xinjiang,” McCloskey said.
The region produced 86 million tonnes last year but has the potential to ramp up to a billion tonnes annually by 2020, McCloskey said, citing Peabody. The remoteness of the region could be a problem, however, he added.
“Industry will move (to Xinjiang); the coal will not move to the coastal provinces. (But) 75% of steelmaking in China is on the coast. I do not see Xinjiang having sufficient infrastructure to provide the 550 million tonnes of coking coal that China now consumes (annually) … so I see that China stays as a big importer going forward,” McCloskey said.
Price expectations and reality
The pricing panic that broke out in relation to the Queensland floods has now subsided, and coking coal prices have corrected for the most part, McCloskey said. Also acting to restrain prices, he noted, is the fact that underlying steel prices are nowhere near the levels they reached during the in early 2008 Australian flooding.
“People who talk about $400/tonne coking coal prices—well, take it with a pinch of salt,” McCloskey said. Even so, prices for poorer-quality US blending coals have risen by about $100/tonne over the past month, he added.
“We were already going to have a difficult year even before the Queensland flooding. Most people have solid long term contracts. … Anyone who’s tendering I believe is not going to get their tonnages. It’s just impossible,” McCloskey said.
Brett Hartke is a contributor to ResourceInvestor.com who has more than 20 years of experience researching and writing about commodities and the metals markets.
Coking coal (also known as metallurgical coal) is essential for making steel using conventional methods to melt iron ore. A majority of the world’s steel could not be made without such coal, which is relatively rare compared with the steam (thermal) coal typically used in heating and electricity generation. Coking coal was already in tight supply prior to the flooding in Queensland.
Lost coking coal production in Queensland meanwhile could exceed 15 million tonnes, a shortfall that cannot quickly be remedied, according to Gerard McCloskey of McCloskey Group, who spoke last week at the annual Investing in African Mining Indaba conference here. Additional supplies are coming from previously untapped or underutilized sources, he said, but added that new export restrictions in some countries will nullify some of these gains.
The situation is far worse than three years ago, when flooding also affected Queensland coal production. At that time (February 2008), the tonnage lost is estimated to have been only 5-6 million tonnes, McCloskey said. On the other hand, the effect on the recent floods appears to have more than counterbalanced fears of a slowdown in Chinese coal demand
“Can Australia and the rest of the coking coal market make up the lost tonnage in the balance of the year? The answer is: no,” McCloskey said. “Some people will not be able to make steel because of what is happening in Queensland,” he stated.
In an attempt to close the supply-demand gap, new coking coal sources are being developed and existing production is being exported in greater quantities from Indonesia, Russia, Mozambique and Mongolia. Even Colombia exported a small amount of coal (10 million tonnes) to Asia last year, McCloskey said. Infrastructure upgrades may make some regions more viable as exporters. In particular, planned rail links may soon access remote Russian and Mongolian supplies. Meanwhile, South Africa, Indonesia and China have instituted or are considering coal export restrictions in order to ensure supplies to their own steel sectors.
In 2011 Canada and Mongolia will export a little bit more than usual. US producers also will export more, but these will generally be poorer quality coals (for blending) that are normally sold into the domestic steam coal market, McCloskey said. This year also will likely see a major surge in US port activity, including development or expansion of coal loading facilities on the Columbia River and at Cherry Point in Washington state; expansions in the Mid-Atlantic region at Lamberts Point in Virginia, and Baltimore, Maryland; plus the addition of Nova Scotia in eastern Canada as a loading point, he added.
US producers have steadily expanded coking coal exports in recent years, from 37 million tonnes in 2009, to 55 million tonnes in 2010. This year, US exports are forecast to reach 65 million tonnes. much of which will be in the form of relatively low grade blending coals. These factors will help to restrain prices.
China and India will continue to be major importers of coking coal, McCloskey said. This will happen despite plans by US coal producer Peabody Energy to help develop coal reserves in the Xinjiang region of far northwest China.
“I believe China has a major problem with its hard coking coal reserves. The boys in Shanxi Province, who produce the bulk of (China’s coking) coal, say future growth will all come from Xinjiang,” McCloskey said.
The region produced 86 million tonnes last year but has the potential to ramp up to a billion tonnes annually by 2020, McCloskey said, citing Peabody. The remoteness of the region could be a problem, however, he added.
“Industry will move (to Xinjiang); the coal will not move to the coastal provinces. (But) 75% of steelmaking in China is on the coast. I do not see Xinjiang having sufficient infrastructure to provide the 550 million tonnes of coking coal that China now consumes (annually) … so I see that China stays as a big importer going forward,” McCloskey said.
Price expectations and reality
The pricing panic that broke out in relation to the Queensland floods has now subsided, and coking coal prices have corrected for the most part, McCloskey said. Also acting to restrain prices, he noted, is the fact that underlying steel prices are nowhere near the levels they reached during the in early 2008 Australian flooding.
“People who talk about $400/tonne coking coal prices—well, take it with a pinch of salt,” McCloskey said. Even so, prices for poorer-quality US blending coals have risen by about $100/tonne over the past month, he added.
“We were already going to have a difficult year even before the Queensland flooding. Most people have solid long term contracts. … Anyone who’s tendering I believe is not going to get their tonnages. It’s just impossible,” McCloskey said.
Brett Hartke is a contributor to ResourceInvestor.com who has more than 20 years of experience researching and writing about commodities and the metals markets.
CAPE TOWN, South Africa -- Severe and widespread flooding several weeks ago in Queensland – Australia’s main coal producing region – sent shock waves through the already under-supplied coking coal market. Prices briefly ratcheted up to what some termed hysterical levels. They have since retreated and normalized to a degree, but there will be long-term effects that will leave some steelmakers very hard pressed.
Coking coal (also known as metallurgical coal) is essential for making steel using conventional methods to melt iron ore. A majority of the world’s steel could not be made without such coal, which is relatively rare compared with the steam (thermal) coal typically used in heating and electricity generation. Coking coal was already in tight supply prior to the flooding in Queensland.
Lost coking coal production in Queensland meanwhile could exceed 15 million tonnes, a shortfall that cannot quickly be remedied, according to Gerard McCloskey of McCloskey Group, who spoke last week at the annual Investing in African Mining Indaba conference here. Additional supplies are coming from previously untapped or underutilized sources, he said, but added that new export restrictions in some countries will nullify some of these gains.
The situation is far worse than three years ago, when flooding also affected Queensland coal production. At that time (February 2008), the tonnage lost is estimated to have been only 5-6 million tonnes, McCloskey said. On the other hand, the effect on the recent floods appears to have more than counterbalanced fears of a slowdown in Chinese coal demand
“Can Australia and the rest of the coking coal market make up the lost tonnage in the balance of the year? The answer is: no,” McCloskey said. “Some people will not be able to make steel because of what is happening in Queensland,” he stated.
In an attempt to close the supply-demand gap, new coking coal sources are being developed and existing production is being exported in greater quantities from Indonesia, Russia, Mozambique and Mongolia. Even Colombia exported a small amount of coal (10 million tonnes) to Asia last year, McCloskey said. Infrastructure upgrades may make some regions more viable as exporters. In particular, planned rail links may soon access remote Russian and Mongolian supplies. Meanwhile, South Africa, Indonesia and China have instituted or are considering coal export restrictions in order to ensure supplies to their own steel sectors.
In 2011 Canada and Mongolia will export a little bit more than usual. US producers also will export more, but these will generally be poorer quality coals (for blending) that are normally sold into the domestic steam coal market, McCloskey said. This year also will likely see a major surge in US port activity, including development or expansion of coal loading facilities on the Columbia River and at Cherry Point in Washington state; expansions in the Mid-Atlantic region at Lamberts Point in Virginia, and Baltimore, Maryland; plus the addition of Nova Scotia in eastern Canada as a loading point, he added.
US producers have steadily expanded coking coal exports in recent years, from 37 million tonnes in 2009, to 55 million tonnes in 2010. This year, US exports are forecast to reach 65 million tonnes. much of which will be in the form of relatively low grade blending coals. These factors will help to restrain prices.
China and India will continue to be major importers of coking coal, McCloskey said. This will happen despite plans by US coal producer Peabody Energy to help develop coal reserves in the Xinjiang region of far northwest China.
“I believe China has a major problem with its hard coking coal reserves. The boys in Shanxi Province, who produce the bulk of (China’s coking) coal, say future growth will all come from Xinjiang,” McCloskey said.
The region produced 86 million tonnes last year but has the potential to ramp up to a billion tonnes annually by 2020, McCloskey said, citing Peabody. The remoteness of the region could be a problem, however, he added.
“Industry will move (to Xinjiang); the coal will not move to the coastal provinces. (But) 75% of steelmaking in China is on the coast. I do not see Xinjiang having sufficient infrastructure to provide the 550 million tonnes of coking coal that China now consumes (annually) … so I see that China stays as a big importer going forward,” McCloskey said.
Price expectations and reality
The pricing panic that broke out in relation to the Queensland floods has now subsided, and coking coal prices have corrected for the most part, McCloskey said. Also acting to restrain prices, he noted, is the fact that underlying steel prices are nowhere near the levels they reached during the in early 2008 Australian flooding.
“People who talk about $400/tonne coking coal prices—well, take it with a pinch of salt,” McCloskey said. Even so, prices for poorer-quality US blending coals have risen by about $100/tonne over the past month, he added.
“We were already going to have a difficult year even before the Queensland flooding. Most people have solid long term contracts. … Anyone who’s tendering I believe is not going to get their tonnages. It’s just impossible,” McCloskey said.
Brett Hartke is a contributor to ResourceInvestor.com who has more than 20 years of experience researching and writing about commodities and the metals markets.
The call to reduce the use of coals is valid for western countries but unfortunately, coal publications show developing economies are more likely to increase their use of coal in coming years because of its affordability and to meet increasing demands for electricity and steel for the coal industry. www.coalportal.com
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