Coal news and updates

Two mine fires and a snarl in river transportation could help send steelmaking coal back toward $300.

·         Latent supply tightness won’t likely become evident until China, India begin restocking.

The market for coal used to make steel is in the summer doldrums, but supply outages in Australia and the United States are providing underlying tightness that could cause prices to spike in the late summer and fall once Asian steelmakers start restocking.

Mine fires in Australia and West Virginia and a lock and dam closure in Alabama are causing latent tightness that won't become visible until India and China come back to the market between August and October. Once they do, prices are likely to move higher but remain capped below record highs by a sluggish global economy. 

"The supply side looks very supportive of met coal prices," John Berman, chief investment officer with natural resources investment management company Berman Capital Group, told Benzinga. "It's the demand side that is potentially the brakes on any price rally."

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Australia's Grosvenor Outage

Among the top concerns of the market right now is the outage at Anglo American's NGLOY Grosvenor Mine, which supplies more than 1% of global seaborne steelmaking coal.

An explosion and fire forced the company to suspend production at the mine late last month, knocking out up to 3 million tons of Anglo’s total expected 15-17 million metric tons of steelmaking coal output for 2024. On Thursday, the miner revised that guidance to 14-15.5 million metric tons.

The day after the explosion, Anglo said the outage could last several months because of likely damage underground.

Last week, Australian mining union officials said they were worried that Grosvenor might close permanently, although they acknowledged that Anglo was trying to recover the mine.

Metallurgical coal prices initially jumped on the Grosvenor news, but then retreated as Anglo reportedly assured customers of third quarter deliveries. However, the company reportedly said it wouldn't be able to meet delivery obligations in the fourth quarter.

"While the incident will continue to provide support and tighten supply, it appears that part of the initial price rally was speculative," RBC Capital Markets said in a note.

US River Transportation Outage

In the United States, the Army Corp of Engineers closed the Holt Lock and Dam on the Black Warrior River in Alabama on June 22 as a safety precaution because of cracks and leaks. The river is a key artery for barge transportation of coal.

The infrastructure will be closed for three to five months while a new steel-enforced bulkhead can be manufactured, Army engineers said.