Coking coal: Prospects in a tumultuous year

A deep dive into factors any play at global and local levels.

- Sumit Maitra and Dr Mahul Brahma

Coking coal saw its glory days fading away quickly as the Covid pandemic engulfed the world.

Spot price of seaborne premium hard coking coal that remained above $200 a ton in the first quarter of 2019, supported by, among other things, a healthy 10 percent growth in Chinese crude steel production, is now ruling at around $140 after dropping to below $100 a ton in November as the realisation sank in that China, which had suddenly stopped all coking coal shipments from Australia, would continue with its posturing for a prolonged period.

The geo-political tension between China and Australia is not expected to cool down any time soon and this new normal has completely transformed global coking coal trade with Australia finding new customers in India while shipments from Indonesia to US and Canada finding their way to China.

This global rebalancing of coking coal trade pushed nifty Indian steel makers to enter into coking coal contracts at cheap rates that helped, to some extent, overcome the impact of sharp appreciation in iron ore prices that dented their profitability.

What lies ahead for coking coal, particularly in the context of domestic steel sector, where this largely imported commodity accounts for 40-45 percent of the steelmaking cost for a domestic blast furnace operator?

Coking coal demand outlook

The domestic steels sector had a dream run in the last quarter of the last financial year, ramping up production and sales as the economy opened and export opportunities revived. Soaring steel prices along with lower coking coal prices helped them earn handsome profits despite higher iron ore prices.