Ok so here's a question: why has the price of coking coal collapsed by a significantly larger margin than iron ore? Both are used largely in the production of steel. Both inputs are largely unsubstitutable in the production of steel and demand for them is price inelastic.
Is it because the proportional increase in coking coal has been significantly higher than that of iron ore? If so, when production of iron ore has caught up in proportional terms with coking coal, will iron ore have a proportionally lower price as coking coal?
In other words, is coking coal foreshadowing an even further reduction in the price of iron ore as the big miners keep cranking up production?
Hi, p.......a,
The reason that Australian demand for coking coal is out of synch with that of Iron Ore is that China and India
are mostly capable of producing their own coking coal at economic COP. Our big customers for coking coal
is Japan & Korea and as China takes steel market share from both of these, the demand for Aussie coking coal reduces and hence the price. That's why Peabody and Whitehaven Coal are struggling to make a profit.
"China:
China has been by far the biggest coal producing country over the last three decades. The country produced about 3.6 billion tonnes (Bt) of coal in 2012 accounting for over 47% of the world's total coal output. The country is also a giant consumer of coal accounting for more than half of the world's total coal consumption in 2012, importing 289 million tonnes (Mt) of coal also making it the world's biggest coal importer. China possesses the world's third biggest coal reserves, estimated at 114.5Bt as of December 2012 with around 12,000 coal producing mines spread across 28 provinces. Shanxi, Inner Mongolia, Shaanxi and Xinjiang are the biggest coal producing provinces in the country. About half of China's coal is used for power generation, which accounts for over 80% of the country's electricity output.
India:
India was also the third biggest coal consumer accounting for eight percent of the world's coal consumption in the same year. India imported 160Mt of coal in 2012 becoming the third biggest coal importer after China and Japan. Coal accounts for about 68% of India's electricity generation. India's proven coal reserves, estimated at 60.6Bt as of 2013, are the third biggest in the world. The four eastern Indian states Jharkhand, Chhattisgarh, Orissa and West Bengal account for about 70% of the country's coal reserves. Andhra Pradesh, Madhya Pradesh and Maharashtra are the other leading coal producing states in India."
(Source: mining-technology.com)
Recently Mongolia and Africa have come on line as competitors.
Our Pilbara Iron Ore is ultra competitive because of grade, close to surface,low contaminants and close to
deepwater shipping ports as is Vale's Brazilian Iron Ore. Mongolian and domestic China's coking coal is close
to China's northern steel mills and has a transport component cost advantage.
