Covid-19 reverses coking coal's 1Q gains

The Argus premium hard low-volatile coking coal index has risen by as much as 17pc to $163.70/t fob Australia on 3 March since the start of the year but has since fallen to around $136/t to give up all of its gains. Supply concerns provided the main price support, with heavy rains disrupting rail and port loading logistics in main supplier Queensland throughout much of the quarter.

Chinese spot demand also held firm durig the quarter, driven by the country's lockdowns and Mongolia's temporary halt to exports, tightening its supply. China-delivered prices rose by as much as 17pc to a peak of $176/t cfr China on 3 March. They have since fallen by 20.5pc to a four-year low of $139.75/t cfr today.

Optimism is fading fast as supply is now overtaking demand. Chinese domestic coal output gradually returned to normal in early March, and lockdowns across major met coal buying countries have significantly reduced global demand.

Chinese buyers are increasingly aware of the emerging supply glut in recent weeks as offers are lowered, and this is bringing them back to the spot market in droves. A cargo of Peak Downs traded as high as $173.80/t cfr China on 20 March, while the same brand traded at only $143.90/t cfr just late last week. Spot volumes done on a cfr China basis rose to 475,000t in March, up by 48pc from 320,000t a month ago.

Buyers have mostly avoided declaring force majeure. Many have instead sought to defer shipments as they aggressively cut output. Integrated steelmaker ArcelorMittal was the exception, declaring a force majeure in mid-March on steel feedstocks shipments, including coking coal, to its European steel mills as demand for steel stalled in Europe amid lockdowns.

India's three-week lockdown has removed a major segment of Asian spot buyers from the market. Its steelmakers have scaled back operations during the lockdown, which is set to end on 15 April, but many states in India could extend lockdowns for another two weeks until 30 April. "In fact, the 30 April deadline is the minimum [extension]," an Indian trader said. "It could be extended for an even longer period if the situation does not improve."

The Indian government is trying to restart some steel operations in the country amid fears of irreparable damage to the economy, but mobilising enough workers remains one of the biggest hurdles to these restarts, market participants said.

Some northeast Asian steel mills are requesting for deferments or delays to their contracted second-quarter cargoes, as dampened steel outlooks have compelled them to further cut production. Some of these cargoes may have been diverted to China as it remains to be the only viable export market in the world at this point.

"There is a lot of PCI available in the spot market targeting Chinese customers," a Shanghai-based PCI trader said. "We did not know that there was availability until recently, including of Coppabella PCI, Foxleigh PCI, Jellinbah PCI and PCI of other origins such as from Canada and Russia."

By Rou Urn Lee and Dylan Wong