Coal news and updates

Indian steel mills settle Q3 coking coal contract at $120

July 1: India’s steel makers are believed to have settled third quarter (Q3) July-September contract for coking coal at $120 per ton, industry sources said.

The Q3 contract prices have remained unchanged from second quarter (Q2) April-June period, sources said. However, the new contract price could not be immediately confirmed from the companies involved, namely Tata Steel, Steel Authority of India Ltd (SAIL) and JSW Steel Ltd.

Meanwhile, spot prices for coking coal have been hovering around $110-115 per ton FOB Australia in recent months. The prices have tumbled 17% this year as demand in China shrank and Australian supplies increased.

Some analysts have raised earnings estimates for Tata Steel Ltd, SAIL and JSW Steel even as the producers have struggled to boost profit margins from near a decade-low as an economic slump crimped demand. However their shares have outperformed the benchmark index this year on Prime Minister Narendra Modi’s pledge to build 100 cities and rekindle stalled projects.

Indian steel mills relied on imports as coking coal is scarce in India, with the biggest mine in the eastern state of Jharkhand trapped in a century-old underground fire. India imports about 65% of its coking coal requirement, with the top three steel makers accounting for half of the purchases. State-owned SAIL, the biggest importer, uses the shipments to meet 70% of its needs.

China’s efforts to cut pollution coupled with an overcapacity in sea-borne coking coal will weigh on prices of the commodity. The world’s biggest consumer is also planning to reduce a steel capacity glut, estimated at 210 million tons.

Demand for steel in India may rise at least 4.5% in the 12 months ending 31 March, rebounding from less than 1% last year, the smallest since 2009, fuelled by construction and automobiles.

Earlier, Australian HCC quarterly contract price between Anglo American and Nippon Steel & Sumitomo Metal Corp. settled unchanged at $120 per ton (FOB Australia), for the third quarter. Both the companies also agreed on a contract price of $116 per ton FOB basis for Anglo's Moranbah North product, again unchanged from that in the second quarter.

It was widely expected that the prices could see some recovery, but the recent gradual declines in the spot markets meant that there was an added pressure on the miners to settle these contracts as early as possible, before the further declines take effect in the market.

On the other hand, Australia's Bureau of Resources & Energy Economics recently indicated that it expects quarterly benchmark prices to average at $123 per ton for the whole of 2014. This is $5 per ton lower from its previous forecast in late March, which in effect means that the prices would have to improve for both contractual and spot trade, by 2-3 percent in the second half.

The CFR India offers of Australian mid volatility HCC cargoes were reported below $111 per ton (CFR East Coast), for panamax shipments.