China's demand for coking coal is running hot DAVID SCUTT OCT 4,...

China's demand for coking coal is running hot
DAVID SCUTT
OCT 4, 2016, 12:17 PM
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DANIEL MIHAILESCU / AFP / Getty Images
Coking coal prices have been on a tear recently, jumping more than 130% in the past three months alone.
The chart below, courtesy of the Commonwealth Bank, partially explains why.
It shows monthly Chinese coking coal imports over the past five years. While there have been periods where demand has been higher in prior years, there’s been a noticeable uplift seen since the beginning of the year.

Demand is clearly strengthening.
“The lift in China’s coking coal imports this year reflects stronger steel output growth, a key driver of coking coal consumption,” said Vivek Dhar, a mining and energy commodities analyst at the Commonwealth Bank. “China’s steel output rose 3.0% y/y to 68.6 million tonnes in August as Chinese steel prices rallied on improvements in China’s property and manufacturing sectors, reflecting China’s return to stimulus-led growth.”
To fuel that lift in steel output, Chinese coking coal imports rose by 56% year-on-year in August to 6.5 million tonnes.
“The composition of China’s coking coal imports in the last 12 months shows a mixed picture,” says Dhar.
“Mongolia has fared better than other nations, with exports to China up 28% y/y. Australia, Canada and Russia have seen exports to China fall 10% y/y, 7% y/y and 39% y/y, respectively.”
In the first eight months of the year, import volumes rose by 17% compared to the same period a year earlier.
Along with strengthening demand as a result of increased infrastructure and residential property investment, Dhar notes that there have been other factors that have contributed to the enormous, and largely unexpected, price surge.
“Coking coal imports surged in August due to a domestic shortage of coking coal,” he says.
“Heavy rains in China in late July likely explains the sharp rise in imports, as key supply routes from the coking coal producing province of Shanxi to the steel producing province of Hebei were blocked.
“Seaborne export markets have also been constrained after South32 declared force majeure on coking coal shipments following technical issues with the roof of its Appin coal mine in Australia in early September. A few weeks later a train derailment in Queensland’s Bowen Basin led to transport delays for coking coal shipments from mines owned by BHP Billiton and Glencore.”
Although temporary factors that could see prices decline once supply disruptions ease, Dhar suggests that demand will likely remain strong in the coming months, helping to underpin prices.
“We expect coking coal imports to remain elevated in September and October to reflect the current supply-demand dynamics,” he says.
“Spot premium coking coal prices of $US213 a tonne (FOB Australia) are well above the September quarter contract price of US$92.5 a tonne.
“We anticipate the December quarter coking coal contract price to rise sharply.”