India Dances To Dragon, Aussie Met Coal Beats!

China leverages its domestic met coal production to control prices

There is no denying the fact that Indian buyers of coking or metallurgical (met) coal are at the mercy of China and Australia. They not only dance to the dragon’s tune but also to the Aussie beat!

Although China is not a very heavy importer of met coal from Australia – its volumes were at a modest 60 million tons (mt) in 2016 and is estimated to touch 56 mt in 2017 against India’s 51 mt in 2016 (an estimated 52 mt in 2017) and Japans’ 53 mt in 2016 (likely to remain flat in 2017), it can still influence Australian coking coal prices.

But how?

This is primarily on account of two key reasons, according to Sandeep Bhargava, Director, Avani Resources. Speaking at the 11th Indian Coal Markets Conference, which was organised by mjunction services limited in Kolkata recently, Bhargava said: “One reason is that the Chinese domestic met coal production, which, last year, was at 440 mt, is huge. If the dragon decides to increase its met coal production and reduce its imports, prices will crash and vice versa. Second is the Mongolian factor. This is a land-locked country, with one outlet, and that is China! Mongolian coal imports into China, over the border, have increased and is playing a significant role in capping Chinese interest in buying seaborne met coal.”

The importance of being China

There is no denying China’s growth in the thermal coal industry, and the dominant role it plays in the steel industry and necessarily in the metallurgical coal industry. It is also a fact that China today dominates, by and large, all commodities across the globe – copper, iron ore, coal – and influences all prices.

Australia, on the other hand, currently controls 60-65 percent of the global seaborne met coal market, making it a major and influential player.