Coking coal producers will face extended strain

Subject

Market beset by multiple headwinds.

Significance

Premium hard-coking coal -- used in the production of blast-furnace coke for steel mills -- is trading at around 92 dollars a tonne, up from a February low below 80 dollars a tonne but still a long way down from the more-than-300 dollars a tonne it commanded in 2011. China's steelmakers are making less steel and using more domestic coke to do so; China's hard-coking coal imports fell by 23% in 2015. Although imports rebounded in the first quarter of 2016, China has said it will shutter up to 150 million tonnes (mt) of steel production, 70 mt of coke production and much of its coal production.

Impacts

• Domestic oversupply in China will drive imports down, with the gradual decoupling of seaborne and Chinese metallurgical coal prices.
• Many mine closures are reversible; should market conditions improve, up to 70 mt of idled capacity could resume production.
• Any major weather event could strain the supply chain, triggering a shortage.