Coking Coal Market Will Get Tight, Pricey

22 Oct 2010 • by Natalie Aster

John Surma, CEO of U.S. Steel, predicts at the Met Coke World Summit in Pittsburgh that buyers will need more steel in 2010 than during the recession-not only boosting demand for steel but also for the coking coal, iron ore, scrap, limestone and ferroalloys needed to make raw steel.

Surma is quoted by the Pittsburgh Tribune-Review newspaper as saying the domestic steel industry's operating rate-now around 62% of capacity-will have to be boosted to meet anticipated higher 2010 demand for steel. And that will increase demand for coking coal substantially.

In fact, CRU Group consultant Ronnie Cecil forecasts at the meeting that production of coke, made by burning metallurgical coal and used as a fuel in steel mill blast furnaces, should increase to between 25 million and 28 million tons in 2010, from the projected 15 million tons this year.

In its third-quarter report this week, Peabody Energy say it expects to see demand and prices to improve soon for metallurgical coal, propelled by growing demand in China and India. Coking coal is selling around $143/ton these days in the U.S. Still, higher demand could bring an increase in coke prices to $200-$250/ton next year, Cecil forecasts.

The metallurgical coal market has tightened appreciably in recent months because of the emergence of China as a major consumer. Macquarie Research says China has moved from a marginal net importer last year to importing as much metallurgical coal as Europe this year. China now is the second largest importer in the world after Japan.

The latest Macquarie Research report says that, in the absence of 2009 Chinese demand, exports through August would have declined 31.8%. "We would have seen more mines shutdown and more prolonged shutdowns across Australia, the U.S. and Canada, "the report says. "Given China's emergence, however, and given recovering steel production rates through the world outside China, we are now seeing mines being brought back on line and exports surging again toward practical capacities."

Coking coal supplies from China have been limited by a 40% duty it has placed on exports of metallurgical coal. That has boosted the Chinese export price to more than $350 a ton, thus limiting its demand on the international market.

Source: Purchasing

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