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H1 Coking Market Summary – China keeps market afloat

Trade volumes have increased solidly in the seaborne coking coal market in 2013, rising around 15% in H1’13.  However, as is the case in thermal coal, the market is heavily oversupplied, particularly from Australia, which is keeping a lid on prices, which remain in the low US$140’s for premium hard coking coal.  China accounts for the majority of demand growth (see chart below), while Japan and Brazil have also started the year strongly, while Europe and Korea have been slow.  India has been steady rather than spectacular.20123 YTD Import Growth

As with thermal coal imports, Chinese demand slowed in Q2 after a very strong Q1, a pattern that was mirrored in most major importers (see chart below) with the exception of Brazil and Europe.

Import Growth

On the supply side, Australia has dominated export growth in 2013, with hard coking coal exports up almost 6Mt and semi-soft/PCI exports up over 3.5Mt in H1.  This was pushed by take-or-pay contracts, a concerted effort by Australian producers to reduce unit prices, and relatively good weather conditions over H1, particularly in Q2.  Russia and Canada also increased volumes, albeit at much lower rates, but the US (high position on cost curve and weak international prices) and Mongolia (weak prices at Chinese border) both were down on last year (see chart below).

export growth

If the above chart wasn’t strong enough evidence of a resurgence in Australian exports, the chart below should be.  A surge in Australian supply in Q2 has halted Canadian growth in its tracks, and pushed aside US exporters.  A strong performance from Russia also made life difficult for the North Americans, as did comparatively stronger exchange rates.  Given that June was a record high for Australian exports, the pain for the US and Canada may not yet be over.

 export growth 2



The all-important Chinese steel market showed little sign of slowing down in 2013, with H1 steel production up 33Mt to 389Mt, a y-o-y increase of 9%.  This kept the seaborne coking coal market from weakening further, with H1 imports rising 28% y-o-y to 35Mt.  While June numbers were quite weak they have rebounded again in July, providing a boost for exporters, particularly Australia.  China is taking less material from Mongolia, with imports ytd falling around 0.8Mt.


Japanese steel producers are benefiting from a dose of Abe-nomics, which has resulted in a lower yen (depreciating over 20% against the US$ in the last year) and greater export opportunities.  This has in turn resulted in a strong rise in coking coal imports, up 3.3Mt (14) y-o-y for H1.  It appears the Japanese are also taking advantage of weaker coking coal prices, and are building stock levels.


Coking coal imports into India have grown in 2013 (unlike 2012) but growth has been modest (up 0.8Mt ytd) rather than spectacular.  India’s steel sector is struggling with constrained domestic iron ore supply, sluggish economic conditions and weak demand for steel.  However, the recent expansion of a number of steel mills, and constrained domestic coking coal production, should see imports continue to grow steadily for the remainder of 2013.


The European steel sector remains in the doldrums, beset by weak domestic demand, higher imports from competitors, and high costs.  However, EU iron production has only fallen 2% y-o-y in H1, presumably due to the fact that the market couldn’t get much worse than 2012, and has been largely offset by strong growth in Turkish production, which is up almost 20%.  This has resulted in coking coal imports increasing around 0.8Mt over the half.


Brazil has been one of the few bright spots for coking coal imports in 2013, with H1 imports up to 8.5Mt from 6.1Mt in H1’12.  There appears to have been a switch from coke to coking coal imports, and the steel sector has been boosted by increased infrastructure investment and the end of a destocking phase.



Australian producers are pushing aggressively into the seaborne coking coal market, in an effort to finally regain the market share lost in the 2011 floods to the US and a lesser extent Canada.  This has resulted in H1 exports of HCC rising nearly 6Mt, or 13% y-o-y.  The situation has been exacerbated by the take-or-pay infrastructure contract system, which incentivises volume throughput, and also coal producers seeking to lower unit costs by higher export tonnages.  The recent depreciation in the AUD has also helped, and it is difficult to see a slowdown before the wet season in late Q4.


After a bright start to 2013, with Q1 exports up 1.5Mt, Canadian growth has slowed to a trickle, but they are doing better than their US counterparts (see below).  While Canadian trade to Europe is down slightly, exports into Asia remain solid, and are going as far west as India.  Canada has benefited somewhat from a weakening CAD in recent months against the USD, and is still very competitive into Asia.


US exporters seem to be finally feeling the pinch of an extended period of weak international prices, and with the USD strengthening against their major competitors (Australia and Canada), this has further weakened their position, and Q2 exports fell sharply y-o-y.  US exporters were opportunistic in 2010/11 when the Australian floods halted production in large parts of Queensland, and they took significant market share gains, but it seems the Australians are finally focused on productivity and are seeing record production levels and the US, as the marginal producer, will lose market share.


Russia has increased its coking coal exports moderately, both into Asia through the east coast and also into Europe through the Baltic.  Mongolian trade has weakened again in 2013, after easing in 2012, with H1 exports to China down to 6.0Mt in H1’13 from 6.8Mt in H1’12.  We suspect this is primarily due to low prices at the Chinese border.

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About Mark Gresswell

Director & Chief Analyst (Brisbane, Australia) Mark’s significant coal industry experience includes global market analysis of both the coking and thermal coal markets, detailed country studies, pricing forecasts, demand and supply modelling and strategic analysis. He spent two years in a commercial role in the European coal market, negotiating contract settlements, developing customer relationships and identifying new business opportunities. Prior to moving into the coal industry, Mark worked in the Australian electricity industry as a regulatory analyst. Mark has five years management consulting experience working with electricity retailers and generators in Australia, New Zealand and the United States. Contact Mark via email: