Recent strength in coking coal prices pushing toward the $200/mt FOB level is leading to revisions around expectations for US miners' sales realizations through year-end, according to investment bank FBR.
"The renewed strength has challenged the widespread expectation of lower prices over the remainder of the year," FBR analysts led by Lucas Pipes said in a report.
"The strong commodity price is driven by supply and demand factors. On the supply side, monthly Australian export volumes have declined sequentially and there have been multiple reports of outages in the US as well," they said. "Chinese met coal production has also remained steady despite strong steel production figures."
FBR said it sees sustained implied deficits in the Chinese coking coal market based on monthly pig iron production in China during a period over the past year. The deficit is typically around 5 million-8 million mt/month.
China lost several million tons of regular import coking coal volume from Australia in the second quarter, after a cyclone disrupted shipments from Queensland in April and May.
In the US, coking coal export volumes in fell from May and April levels. This may indicate a pause in recent supply growth from the biggest so-called swing supplier, in relation to the scale of US coking coal volume able to adjust to meet changing export demand over the years.
US export prices for grades such as high-vol B and blends have lagged behind the increase in premium HCC. US high-vol B export prices averaged 82% of the PLV index in July, based on S&P Global Platts daily assessments. The latest data show it has fallen to around 72% of PLV.
Greater supplies in some categories and a differentiated met coal segment demand may keep overall costs for mills so far in Q3 trending at a greater relative spread to benchmark HCC indexes.
FBR currently assumes 2018 reference met coal prices averaging $135/mt FOB Australia and long-term met coal prices of $130/mt.
