Bad weather in Australia and improved demand in China were the factors driving the higher metallurgical (or coking) coal prices during the second quarter of this year (2Q17), compared with the first quarter (1Q17). So stated Brazilian mining group Vale in its report, ‘Vale’s Performance in 2Q17’.
“Coking coal prices experienced high volatility in 2Q17,” it pointed out. “The quarter started just a week after tropical Cyclone Debbie hit the world’s main coal-exporting region in Australia, leading to prices peaking at nearly $305/t in mid-April. From then onwards, prices receded, bringing the 2Q17 average to $190.3/t, still 15% higher than 1Q17.”
A “relatively healthy” Chinese steel industry saw that country import 30-million tons (Mt) of coking coal during the first five months of this year. Australian supplies of coking coal returned to more normal shipment levels during June. Estimated losses for 2Q17 total 12 Mt, most of which were the result of Cyclone Debbie. The lost supplies from Australia (Queensland) led to an increase in metallurgical coal exports from Mongolia and the US and to a rise in domestic production in China.
The price realised by Vale for its metallurgical coal from Moatize during 2Q17 was 22% higher than during 1Q17 ($201.2/t, compared with $165.2/t), although the price obtained for its thermal coal fell by 7% quarter-on-quarter.
There were a number of specific factors that affected the prices achieved by the Moatize operation, both positively and negatively. The miner listed six such factors, starting with “[q]uality adjustment over the index reference product characteristics, as well as value in use adjustments associated with trial shipments of our new premium and temporary sale of nonpremium coking coal products, which negatively impacted prices in 2Q17 by $4.6/t”.
Two other factors also had a depressing effect on prices. “Freight differentials which negatively impacted prices in 2Q17 by $0.2/t, mainly due to differentials between Vale’s freight rates contracted from Mozambique to the delivery ports and the freight rates set in the sales contracts, which are determined considering delivery from the index reference port.” The other was a number of adjustments, such as new product trial cargo or testing campaign incentives, and penalties, which together cost the company $3.0/t during 2Q17.
On the other hand, prices were boosted by $2.1/t because Moatize’s sales were not spread evenly across the quarter. Further, 2Q17 prices were $7.2/t higher than those of 1Q17 because of the use of lagged index, quarterly benchmark and fixed (spot shipments and rail cargo) prices for sales, “as index prices were higher in 1Q17 and at the beginning of 2Q17”. In addition, sales made during 1Q17, but at provisional prices that were adjusted after the start of 2Q17, increased in price by $9.3/t because of the above-average prices obtained at the start of the second quarter.
Vale’s costs and expenses for the Moatize operation increased by $61-million during the second quarter, compared with the first quarter, to $324-million, from the previous $263-million.