China lifting its Australia coal ban has benefited the outlook for coking coal in 2023, despite headwinds from India and Japan.
Fitch Solutions has increased its 2023 price forecast for Australian coking coal from $US300 per tonne* to $US350 per tonne, however prices are expected to trail off in coming years.
Fitch said near-term concerns stemmed from lessening demand from India and Japan.
“Despite stronger steel production growth in India, the second largest importer, coking coal imports from Australia will remain on the decline as India boosts domestic production of coking coal,” Fitch said in a recent report. “In Japan, the largest importer of Australian coking coal, steel production growth will remain muted in 2023.
“These issues will place a cap on coking coal price strength, preventing any rise to the highs of 2022.”
Fitch highlighted Japan’s second largest steelmaker JFE Holdings’ decision on February 6 to lower its 2023 crude steel production guidance from 25 million tonnes (Mt) to 24Mt because of weak domestic demand and delays in export markets.
And while India’s steel production increased by 5.8 per cent year-on-year (yoy) in 2022, Australian coking coal imports to the country declined by 15 per cent yoy as cheaper coking coal from Russia, Mozambique and Indonesia gained market share.
Despite these headwinds to Australian coking coal, the lifting of China’s ban alone should be enough to support local prices.
“We expect coking coal prices to remain elevated around current levels in the coming months based mostly on the resumption of exports to mainland China,” Fitch said.
“China’s largest steel producer, China Baowu Steel Group, was the first to order Australian coking coal in 2023, as improved bilateral relations between mainland China and Australia saw the former lifting restrictions on coal imports from the latter in January 2023.
“This first shipment of 72,000 tonnes of Australian coking coal is set to arrive on February 8 at Zhanjiang Port.”
Fitch forecasts Australian coking coal prices to average $US300 per tonne in 2024, $US280 per tonne in 2025, $US260 per tonne in 2026 and $US250 per tonne in 2027.
“As the global economy makes its shift to a ‘greener’ future, the shift away from fossil fuels and highly polluting methods of production will see steel producers slowly transition to cleaner steelmaking processes,” Fitch said.
“These include a greater adoption of electric arc furnaces as well as the use of green hydrogen in steelmaking. This paradigm shift will reduce the need for coking coal in the production of steel, hampering the fossil fuel’s long-term demand and price outlook.”
*Prices are for FOB Australian premium hard coking coal.
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