TRADE REVIEW: Asian met coal pins hopes on China stimulus measures for Q4 demand

This report is part of the S&P Global Commodity Insights’ Metals Trade Review series, where we dig through datasets and digest some of the key trends in iron ore , metallurgical coal, copper, alumina, cobalt, lithium, nickel and steel and scrap. We also explore what the next few months could bring, from supply and demand shifts to new arbitrages, and to quality spread fluctuations.

The seaborne metallurgical coal market faces an uneven demand scenario in the fourth quarter, with the outlook widely seen as a function of China’s appetite while participants await the country unveiling the size of its fiscal stimulus measures.

The start of Q4 witnessed a fatal accident at Glencore’s Oaky Creek mine in Queensland Oct. 2, adding to a series of accidents that caused Australia to lower its projected metallurgical coal exports for 2024-25 (July-June) by 6.4% to 161 million mt.

End-users have also turned their attention to a potential La Nina event that typically brings more rains to Australia.

“Should La Nina form in the coming months, it is forecast to be relatively weak and short-lived,” Australia’s weather bureau said in an Oct. 1 note.

Supply-side concerns are not yet escalating, with end-users citing an oversupply of prime coal available with traders and potentially more reselling interest from Europe.

Major buyer India, meanwhile, “has seen a slump in its steel prices and demand, not helped by strong imports of Chinese steel,” causing mills to keep coking coal inventories low, said analysts at S&P Global Commodity Insights Sept. 27.

Australian premium hard coking coal prices fell below the $200/mt FOB mark Aug. 23 for the first time since August 2022 and had stayed below $200/mt for five weeks, before bouncing back to $200s/mt levels on China’s stimulus measures.

The benchmark Platts Premium Low Volatile Hard Coking Coal prices on an FOB Australia basis declined by 12.5% or $29.25/mt on the quarter, closing at $204.75/mt Sept. 30. PLV CFR China prices fell by $35/mt, or 14.2%, over the same period to $212/mt, according to Commodity Insights data.

The immediate market reaction toward China’s monetary stimulus policies was positive — at least for financial markets — as Chinese equities braced for the biggest rally in 16 years.

Ex-China participants remained cautiously optimistic about the spillover effects on steel and coking coal markets while expecting further stimulus measures and their implementation details.
“It would take time to see whether such measures will translate into material impact on downstream demand,” a Singapore-based trader said.

Others though were not convinced.

“Unless there are more solid policies to revive the demand for housing, for example, subsidies or tax incentives … but that would add to the fiscal strain that local governments are already battling with,” another Singapore-based trader noted.

A silver lining
Some Chinese traders and mills expected coking coal to at least receive some support in October before the country enters the off-peak season.
September and October have traditionally been described as golden and silver, respectively, steel demand months in China, although the seasonal effects have eroded somewhat, with technology enabling manufacturing and construction activity to continue during the surrounding months.

Daily hot metal output edged up in September but was still below 2.3 million/mt. It is a low base compared with the January-August average and the 2024 average at 2.4 million/mt, a Beijing-based trader said.

“More mills will ramp up their production or restart idled facilities as they swung back to profits [end-September on the rally in steel products], … but that would also increase the supply of steel going forward,” the trader said.

A string of factors serve to entice China to buy more seaborne coking coal. These range from a more favorable exchange rate, the domestic-seaborne price spread, to the arbitrage playbook for those looking to gain from the gap between yuan-denominated coking coal futures and physical Australian prime coal prices.

That said, cash flow management — a topic high on mills’ agenda — remains a trade hurdle. A handful of Chinese end-users are understood to have the capacity to take forward-delivery cargoes in half to full Panamax-sized cargoes, while the rest prefer to buy port stock in smaller quantities.

A southern Chinese mill source said the open arbitrage window, coupled with domestic third-quarter term contract prices being rolled over to Q4 above domestic spot levels, has rekindled its interest in negotiating term contracts for Australian coal.

Concerns linger though about whether Australian materials would be able to maintain their edge over domestic prices upon arrival, the source added.

The upside for Australian coals would likely be checked by alternatives from Canada, a major China-based trader said.

As Canadian coal piled up at the ports without finding a buyer before discharge, offers for Canadian PLV Raven declined to Yuan 1,700/mt basis ex-stock North China Sept. 27 from Yuan 2,100/mt July 5, according to Commodity Insights data.

China’s import of Canadian cargoes rose 26% year on year to 5.9 million mt in January-August, making Canada the third-largest supplier after Mongolia and Russia. Australian material, meanwhile, surged almost 240% to 4.6 million mt during the same period, customs data showed.

India on sidelines
Subdued prefestival steel demand and a supply glut have curbed Indian mills’ appetite for coking coal, but a recent uptick supported by the Chinese market rebound could see increased coking coal demand in the quarter. A pickup is also likely ahead of the January-March period, traditionally India’s strongest quarter for steel consumption.

However, volumes are still likely to be limited as major mills like Tata Steel and JSW Steel have recently commissioned new blast furnaces and are expected to have secured nearly all of their coking coal needs via term contracts.

The potential implementation of a quota on coke imports has also kept the Indian market on edge. For now, coke imports are flowing into the market and have prevented domestic coke producers from increasing output, participants said.
As such, India is expected to remain a price taker and follow China’s lead, participants added.
Source: Platts