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Tuesday, September 6, 2011

Coking coal prices from Australia soften after large purchasers from Mongolia

Tuesday, 06 Sep 2011

ET reported that a cut in production by steel producers and higher purchases of coking coal by large countries, from Mongolia, has led to a softening of benchmark coal prices from the traditional coal producing country, Australia. The fall in coal prices will give steel companies, including those from India, a chance to recover lost margins after the sharp erosion in profits seen in previous quarters due to high iron ore and coal prices.

Prices of coking coal had surged to above USD 300 a tonne, from USD 200 in 2010, due to supply restrictions from Australia following flooding of mines and increased demand from China. With China now buying more coal from Mongolia, demand for Australian coal has fallen, leading to a softening in prices.

Mr Jayant Acharya, commercial director JSW Steel, said that "There is a pressure on Australia as large purchasers such as China and South Korea have started buying from alternate markets. Moreover, coal prices at USD 300 to USD 310 were too high for steel companies, who did not find it viable at that level."

China alone bought 35 million tonnes of coal from Australia in 2010. This year they have already bought 30 million tonnes from Mongolia, which is fast emerging as an alternate destination for critical resources. Even South Korea, that is home to large steel producers such as POSCO has been looking at Canada and the US for its coal supplies. Both iron ore and coking coal account for three fourths of the cost of production of steel.

Mr Jayant Acharya said that "There is a substantial drop in prices when compared to the peak levels of USD 330 or even USD 315 per tonne in the previous quarter. Since it is for hard coking coal which is the best grade, prices of other grades of coal too will be affected. However, at this stage, it is indicative of where prices could be headed. We will have to see whether other major mining companies also follow suit and lower prices."

International reports said Anglo American has settled October to December 2011 quarter for hard coking coal at USD 285 due to the downward price trend in the backdrop of weak global steel prices.

(Sourced from Economic Times)

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