Metallurgical Coal June 2017
Prices Have Corrected Lower, Stability to Return

The May Premium HCC spot price fell US$86/t in May, averaging US$173/t. Supply lost from Queensland has been offset by production from the US, Mozambique and Mongolia. AME expects spot prices to stabilise with steel production benefiting from strong margins.

The May spot price for premium low volatile HCC averaged US$173/t FOB Australia, down 32% from April, as prices fell sharply on the resolution of supply disruptions caused by Cyclone Debbie. Spot prices fell over US$86/t during the month, to end May at US$154/t. Lower grades of metallurgical coal saw similar, but shallower, downward trends in prices, with PCI and SSCC prices declining 29% and 15% during the month, respectively.

In the Atlantic market, low volatile HCC spot prices averaged US$182/t in May, down 25% from April as the market reacted to an easing of supply tightness in the Pacific market and increased exports from the US. Strong growth in steel production globally, and solid margins for European steel producers, are keeping Atlantic prices relatively similar to the Pacific market and we expect this trend to continue in 2017.

The June Quarter contracts are still to be settled, and after negotiations stalled in early-May, rumours about a shift to index-linked contract pricing gained momentum, though whether the change would be for this quarter only, or a structural shift in the way contracts are settled, is all speculative. AME currently expects that if an index linked contract is agreed to, it would likely only apply to the June Quarter and both producers and consumers would happily return to fixed contract prices once volatility in prices eases.

AME sees continued downward pressure on coking coal prices over the coming months due to ample supply, both returning from Queensland, and ramped up production from the US, Mongolia and Mozambique. Chinese rebar prices are currently near a 5-year high and infrastructure spending growth in China rose for the eigth consecutive month in April to 18.5%, month on month.

Overall, AME expects to see spot prices to stablisie in June as supply constraints have been resolved. Strong steel margins at present have allowed steelmakers to absorb the higher costs, but downward pressure from increased supply will be the overarching factor over the coming months.