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Arch Coal Expects Hard Coking Coal Demand to Increase Amid Higher Steel Output

Published: March 15, 2018 |

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Platts reported that US miner Arch Coal expects additional domestic coking coal demand of 2 million to 3 million st as a result of Section 232 import tariffs on steel spurring higher steel output. Seaport Global analysts led by Mark Levin said that “The tariffs could eventually add around 5 percent to overall US met coal demand, all of which will be fed by US producers.”

They said that “Increased US consumption might enable producers to get prices domestically that are at narrower discounts to seaborne ones.” They added that “The real key, though, will be whether Section 232 brings meaningful retaliation from other countries and how that affects the overall market.”

Export spot US coking coal prices tracked by S&P Global Platts have outpaced average US domestic contract pricing since 2015, according to data and estimates calculated by S&P Global Platts.

A key component in this comparison is railing and terminal fees, to establish coal pricing netback at the mine for comparison. Seaport expects rates to have increased recently.

Railroads “are generally capturing 15-20 percent of the value of the product,” which would suggest current rail rates including port charges in the mid-USD 30s/st, up from closer to USD 30/st in 2017.

Arch expects potential 1-2 percent/year average global coking coal demand growth through to 2025, which would lead to around 40 million st of additional coking coal supply, Seaport said, citing the company’s Senior Vice President for Strategy Deck Slone.

Slone expects Australia will have to play a critical role in expanding production to meet demand, and is concerned about the lack of projects globally in current pipelines to ensure sufficient supply, it said.

Changes in Chinese import met coal appetite may, on the contrary, be a risk for met coal prices should a sudden drop hit the seaborne market’s marginal supply and demand balance.

Seaport said that “BHP Billiton and many other larger miners don’t seem to be spending much growth capital on their met coal businesses.”

Seaport said that “With their increasing emphasis on using higher quality met coals to maximize coke times/minimize environmental issues and the coastal location of many of their larger blast furnaces, he thinks this is unlikely, but it is a risk given the unpredictability of Chinese policy decisions.”

Source: Platts


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