Aussie coal prices soften after cut in steel production, higher coal buys by large purchasers from Mongolia
A cut in production by steel producers and higher purchases of coking coal by large countries, from Mongolia, has led to a softening of benchmark coal prices from the traditional coal producing country, Australia. The fall in coal prices will give steel companies, including those from India, a chance to recover lost margins after the sharp erosion in profits seen in previous quarters due to high iron ore and coal prices, said industry executives.Prices of coking coal had surged to above $300 a tonne, from $200 last year, due to supply restrictions from Australia following flooding of mines and increased demand from China. However, with China now buying more coal from Mongolia, demand for Australian coal has fallen, leading to a softening in prices.
“There is a pressure on Australia as large purchasers such as China and South Korea have started buying from alternate markets. Moreover, coal prices at $300-310 were too high for steel companies, who did not find it viable at that level,” said Jayant Acharya, commercial director with JSW Steel. China alone last year bought 35 million tonnes of coal from Australia.
This year they have already bought 30 million tonnes from Mongolia, which is fast emerging as an alternate destination for critical resources. Even South Korea, that is home to large steel producers such as Posco, has been looking at Canada and the US for its coal supplies. Both iron ore and coking coal account for three-fourths of the cost of production of steel.
“There is a substantial drop in prices when compared to the peak levels of $330 or even $315 per tonne in the previous quarter,” said Angel Broking senior research analyst Bhavesh Chauhan. “Since it is for hard coking coal which is the best grade, prices of other grades of coal too will be affected. However, at this stage, it is indicative of where prices could be headed. We will have to see whether other major mining companies also follow suit and lower prices,” he added.
International reports said Anglo-American has settled Oct-Dec quarter for hard coking coal at $285 due to the downward price trend in the backdrop of weak global steel prices.
“There is a pressure on Australia as large purchasers such as China and South Korea have started buying from alternate markets. Moreover, coal prices at $300-310 were too high for steel companies, who did not find it viable at that level,” said Jayant Acharya, commercial director with JSW Steel. China alone last year bought 35 million tonnes of coal from Australia.
This year they have already bought 30 million tonnes from Mongolia, which is fast emerging as an alternate destination for critical resources. Even South Korea, that is home to large steel producers such as Posco, has been looking at Canada and the US for its coal supplies. Both iron ore and coking coal account for three-fourths of the cost of production of steel.
“There is a substantial drop in prices when compared to the peak levels of $330 or even $315 per tonne in the previous quarter,” said Angel Broking senior research analyst Bhavesh Chauhan. “Since it is for hard coking coal which is the best grade, prices of other grades of coal too will be affected. However, at this stage, it is indicative of where prices could be headed. We will have to see whether other major mining companies also follow suit and lower prices,” he added.
International reports said Anglo-American has settled Oct-Dec quarter for hard coking coal at $285 due to the downward price trend in the backdrop of weak global steel prices.
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