Usually, Australian coking coal was processed to Coke to fulfill Indian Met Coke requirement. Until, the Chinese Met Coke imports came in the picture. Now, there’s a tug of war between coking coal and met coke imports along with its side effects.
On one hand, China competitively pricing Met Coke and its imports are increasing in India. On the other hand, Australian Coking coal mines are underutilized and Indian merchant Met Coke manufacturers are facing tough time.
Australia is one of the largest sources of Coking coal export. During 2011, as the Asian market surged its steelmaking capacity. Australia in response, invested into development & expansion of its Coal resources. But the projection was wrong and sluggish consumption from Asian countries led to a meltdown in Australian market. During 2011, coking coal was quoted at around USD 300/MT FOB. But, the recent quotations in July 2014 have declined to about USD 111/MT. From our sources we learned that some mining groups in Australia are running at as low as 14% of their overall annual production rate. Also, they are bearing loss on sales, which is as much as about USD 10/MT.
China procures Coking coal from the neighboring countries in large quantity and thus mass production of Met Coke from here comes with an obvious price advantage. China is a tough competitor in global Coke market. It has strengthened itself further, after the removal of 40% export duty on Met Coke in January, 2013. China exported about 4 MnT of Met Coke to India during FY14, which is twice of what they did last fiscal. Also their pricing are well at a difference of about INR 2,000/MT (USD 33/MT), for the regular size. Interestingly, in normal market condition, the Coke consumption in China is more than their production capacity.
Although many in India might’ve benefitted from such low prices of coking coal. But surprisingly, there’s a small group of merchant Met Coke manufacturers in India, who could not make use of this opportunity. These 100% import dependent merchant manufacturers, have consumed just about 7% of the overall Coking coal imports in India during FY14. Operating at about 35% of their operational capacity, they are facing tough times with competitive overseas pricing. On a recent announcement during Budget 2014, the import duty on all types of coal has been increased to about 2.5%. As the hike is applicable even on all coal imports, this will not bring about much change on the present dynamics.
In this tug of war between coking coal and Met Coke currently, Australia is facing deep losses over their Coking Coal investment and a small segment of Indian Met Coke producers are in critical stage. One might have to take a wait and watch stance to know what might lead to their revival. Perhaps, the planned expansion of Steel might be an answer.