Prices for low volatile PCI coals are showing no further degradation after bottoming at around $120-125/t FOB equivalent and have even ticked up by a dollar or so in the last two days, sources told Inside Coal.
Spot sales of lower quality PCI products are reportedly being done at around $115-117/t FOB, probably to Indian buyers. Meanwhile, a second tier Queensland coking coal offered into China at $145/t CFR has found no takers.
For Australian PCI producers, if received prices are much below $120 it is estimated around 75% of production is out of the money, though as producers have continued to focus on cost cutting some gains have been made with one significant Queensland operation thought to have trimmed between $20-30/t in mining costs.
On the premium hard coking coal side, there is, as usual, a disconnect between the Indian, European and Chinese markets with some Indian buyers paying up to $10 above the reported Chinese spot levels for cargoes.
China’s premium coking coal, the Liulin No.4 brand slumped to RMB1,150/t ($183.71/t) FOR in Shanxi on April 22, down RMB160/t ($25.56/t) from RMB1,310/t ($209.27/t) FOR on April 1, following a RMB50/t ($7.99/t) price decline in March.
Australian sources trying to understand Chinese domestic pricing, given its profound impact on import demand, estimate the above costs equate to an FOB equivalent of between $155-160/t.
“Any Australian or US premium coal selling under $150-155/t FOB into China is being done for reasons other than those that reflect market conditions,” a mining executive in Queensland said.
“I don’t believe Chinese mines are profitable at these levels,” the source added.
“They are not as low cost as people think. My gut tells me these prices are at or below their cost of production,” he added.
Some larger producers are staying completely away from the spot market, saying they will deliver quarterly priced tonnes but hang on until May/June when the price is expected to start to show some signs of recovery.
“We may look to move some thermal coal into the PCI market but we’re not making money on any of it,” a source said.
Some estimates suggest at around $155/t, up to 55Mt of global coking coal production is under water.
Australian Coal Report has heard BHP is testing $154-157/t FOB for low-vol hard coking coal for the month of June. While unverified, sources say this number is credible given that it’s a $5 drop on the $162 price done for the month of May.
Given historical trends, BHP’s most recent offer (if shown to be correct), suggests a July-September quarterly price of a little above $160/t FOB.
The China Iron and Steel Association (CISA) has meanwhile warned members to show market discipline and not blindly expand capacity in the face of a precarious steel market where margins for March have hit 0.28%, the Daily Times reported.
“Current steel capacity can already completely satisfy peak domestic steel consumption and we should stop all blindly expanding projects,” Li Xinghuang, CISA’s deputy secretary general warned.
Chinese coking coal imports fell to their lowest level since October last year, to hit 4.6Mt in March, down around 14% month-on-month.
Meanwhile, while Indian mills don't relish paying more than the Chinese the exacting specs and quality requirements of some of the larger players goes some way to explaining the premium.
But India's steel sector is also in dire straits with one source saying this week this was the first time India has been drawn into the vortex of the global slowdown. Others may argue India has been affected for some time already but what is readily apparent is that Indian mills are doing it real tough, for different reasons to the Chinese.
Word this week is that steel major JSW was putting on hold development of a 10mtpa steel plant in West Bengal, mostly around problems with iron ore sourcing.
Meanwhile, car sales in India have fallen for the first time in ten years, dropping 6.7% in the year to March with that month alone falling 23% y-o-y. Some car makers are shutting factories to reduce inventories, stifling steel demand.
While much of the steel used for the body work of Indian made cars is imported from Japan/Korea, most other steel motor parts and wheels are made with indigenous steel, including steel for the bodies of LCVs and HMVs. India’s steel industry also supplies to the two-wheeler industry, said to be huge in India.
Further evidence of India's troubles is suggested by the fact SAIL has again delayed by two weeks its Empowered Joint Committee meeting with some of its US suppliers, supposed to have happened this week.
"This tells us the market is overstocked and means US producers will not settle this quarter because by the time they meet, the quarter is over," a source in India said.
SAIL is thought likely to also demand discounts on any coal with provisional pricing.
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