Major Brazilian mining group Vale, which is the majority owner of the primarily metallurgical (or coking) coal Moatize operation, in the Tete province of Mozambique, expects that there will be less volatility in both metallurgical and thermal coal prices during the course of this year. During the first quarter of 2017 (1Q17), the spot and quarterly benchmark prices headed in different directions, with spot prices falling and benchmark prices rising significantly, compared with the last quarter of last year (4Q16).

“Coking coal spot prices averaged $186.8/t in 1Q17, falling from the $310/t peaks of November 2016 (down 40%), owing to the correction of short-term supply issues seen in 4Q16, good weather conditions in Australia (apart from the very end of the quarter) and high inventories in Asia and Europe,” stated the company in its report, ‘Vale’s Performance in 1Q17’. “On the other hand, quarterly benchmark prices were set before these effects could have been noticed, which led to an increase from $200/t in 4Q16 to $285/t in 1Q17. This created a very high average spread, about $100/t, between spot and quarterly benchmark prices in 1Q17.”

Things were less volatile in China, however, during 1Q17. Domestic prices in that country did show a decline, from $220/t to $190/t by the end of the quarter. This provided new arbitrage opportunities for Chinese traders.

“There is still some uncertainty around Chinese government policy on domestic coal production and around the amount of coal that might be imported, which are key drivers for seaborne demand,” noted the report. “Even so, Chinese imports of coal continued to increase. Imports of coking coal totalled 10.6-million tons (Mt) during the first two months of this year, which was a jump of almost 68%, compared with the same period last year, and a rise of some 8% in relation to 4Q16. Steel prices supported the increased coking coal and coke prices. Regarding thermal coal, Chinese imports in January and February totalled to 28 Mt, an increase of 50% on January and February last year. China’s thermal electricity generation capacity rose 7.3% year-on-year, reaching 728 TWh during the first two months of 2017. This was the result of continued positive economic growth.

“India’s coking coal imports were 3.92 Mt in January 2017, reducing approximately 6%, [compared with] January 2016, as Indian buyers delayed their restocking amid a price decline trend and short-term impact of the demonetisation policy,” observed Vale. The country’s domestic thermal coal production amounted to 55.99 Mt in January, which was 8% below the target output for the month. This was despite the attempts of the Indian government to increase domestic supply from State-owned mines. India’s thermal coal imports in January were 33% lower than imports in January 2016, amounting to 8.88 Mt.

Halfway around the world, Germany saw a decline in its coking coal imports, quarter-on-quarter, but an increase, year-on-year. During 1Q17, these imports fell 8% in relation to 4Q16, but were 17% higher than in 1Q16.

The API4 free-on-board Richard’s Bay thermal coal index stood at around $80/t at both the start and finish of 1Q17, but did have a surge in mid-January to more than $90/t. This was the result of a rebound in the European market. “This rebound was partially due to a surge in power consumption amid lower temperatures and supply tightness, followed by a fall to $75/t in mid-March, as [the resumption of China’s] National Development and Reform Commission coal production controls did not materialise,” affirmed the miner. The current rise seen at the end of the quarter follows the sentiment of possible supply disruptions in Australia from Cyclone Debbie (though to a lesser extent when compared to metallurgical coal) and is due to the arbitrage window created as a result of the surge in Chinese domestic prices and coastal freight.” (It is now clear that Cyclone Debbie did create significant disruption in Australia’s coal supply during the second quarter, beyond the scope of this 1Q17 report.)