BMI Research expects coking coal prices to gradually edge lower in the second half of this year.
Its expectation from the previous forecast done in March that premium hard coking coal export prices will fall below $200/t by mid-year, has played out as prices are now hovering at around $170/t.
The company this week reported that higher production in China early this year, combined with slowing demand from consumers outside China, precipitated the fall in price.
Further price weakness in 2019 and beyond will be driven by a slowdown in steel production growth in China, which accounts for two-thirds of global coking coal consumption.
Despite the pullback of public spending in the infrastructure and construction sectors starting in mid-2017, steel production in China has remained strong to date.
High-frequency indicators show that Chinese steel production grew by 6.5% year-on-year in the first half of this year, compared with the 4.8% year-on-year growth experienced in the first half of 2017.
However, BMI expects this upward trend to reverse from 2019 onwards as the pipeline of new construction projects thin and existing projects reach completion.
Although BMI’s forecast shows that the coking coal market will remain in deficit up to 2027, the shortfall will decrease from 26-million tons this year to two-million tons by 2024, before increasing to ten-million tons by 2027.
As a result, with the view that prices peaked in 2016, BMI’s 2022 average price forecast of $140/t is 25.9% below the 2017 average of $189/t, albeit still 55.6% above the 2015 average of $90/t.
BMI’s view remains that steel production in China will falter with the slowing economy and construction sector, dragging coking coal consumption lower. More stringent environmental regulation of steel mills will exacerbate this scenario.
As such, BMI expects Chinese coking coal consumption will stagnate out to 2027, compared with yearly average growth of about 5% experienced in the last decade.
India will become increasingly important in terms of seaborne demand, with BMI expecting India’s coking coal consumption to grow at a yearly average rate of 5.9% between 2018 and 2027, driven by robust expansion in steel production.
As a result, BMI expects India to overtake China as the largest importer of coking coal by 2025.
China will maintain its dominance in the producers' market for coking coal, with absolute coking coal production expected to increase from 537-million tons this year to 555-million tons by 2027, with production in 2027 being triple that of the second-largest producer, Australia (184-million tons).
BMI further expects Russia to surpass Indonesia as the third-largest coking coal producer in 2026. The company expects China, Australia and Indonesia to gradually lose their global market share of coking coal production to Russia, India and Mongolia.