Coal price volatility hasn’t been an issue for Japanese steel mills since the industry switched to quarterly pricing in April 2010. Over the last 12 months, quarter-on-quarter price changes for coking, or metallurgical, coal has ranged from just 7% to no more than 12%:
Contrast that with the huge price swings of the last two years: In 2008, following extensive flood damage to Australian mining and transportation infrastructure, the price of coking coal jumped by 206% from $98/tonne to $300/tonne —before dropping by 57% in FY 2009. In Q1 2010, the price jumped by 55% – from $129 to $200.
Now the industry is bracing itself for yet another major jump in pricing, thanks to some of the worst flooding in Australian history (coking coal spot contracts have been reported at $350 per tonne or more).
No surprise then that over the last few weeks we have seen numerous forecasts for met coal pricing for the April — June quarter, with some estimates as high as $400 — $500 per tonne, a range that has raised a few eyebrows.
Last week, at the McCloskey US Coal Conference in Miami, we saw the first meaningful industry comment from Xcoal Chief Executive Ernie Thrasher, who said $300 — $320 per tonne would be the likely range for April — June settlement.
Those numbers should prove to be very close to the final settlement; we can certainly expect to see at least $300 per tonne, reflecting 2008 pricing and mirroring the supply tightness created at that time by the previous round of Queensland flooding.
So. How much more than $300? — well, perhaps an extra $25, as producers want pricing to properly reflect the current supply tightness in the market, which is far worse than the tight supply seen in 2008.
Anything over $325 will only be on the table if the steel mills see continuing improvement in the hot-rolled coil price, which over the last three months has already climbed to $820 per tonne from $670 per tonne.
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