It looks like coking coal will soon see a more meaningful increase in prices. While prices have bounced to ~$167/t for premium hard coking coal FOB Australia, from lows of under $150/t, current levels are still very low. But it does look like the balance of the market is becoming tighter.
It looks as if rainfall will be making an impact again this year (although talking about coal prices when many are so badly affected does seem to miss the bigger picture). Australian exports were quite a bit stronger in Q4 by all estimates, but this won't last into Q1.
The Brisbane region is severely affected by flooding yet again and Gladstone has seen decent rainfall, while forecasts suggest that the top end of Queensland will sustain above median rainfall for the next 3 months, which will likely impact Bowen Basin production and shipments out of Abbot point at the very least. The Australian Bureau of Meteorology has lots of interesting weather maps
here.
The vagaries of weather, however, are not the only thing affecting supply into the seaborne market. It does look like very low prices have finally affected US exports (although weather related transport issues may be playing a role as well into year end).
While there has been greater acceptance of lower grade coking coals in recent years when prices have been $200/t+, this doesn't seem to be the case at current levels.
Mongolia has also had problems. It has been well publicised that Erdenes Tavan Tolgoi has stopped producing coal given a dispute with Chalco over pricing and has also had funding problems. This may not be a huge deal given Tavan Tolgoi was only producing 2.5mtpa anyway, but problems do seem to be wider spread than this.
For example, Southgobi Resources has also stopped producing given problems with alleged corruption related to mine licenses. Exports surprisingly slipped by 2mt in 2012 to China, when most would be looking for a rise.
For prices to really recover we need to see an improvement in demand ex-China. Steel production in those countries that are heavily dependant on coking coal imports, namely Japan, Korea, Taiwan, Brazil and India, has been weak in 2H12. But there are signs in leading indicators that activity is either stabilising or starting to improve. A recovery in demand in these countries, along with China, should help make a coking coal price recovery sustainable beyond weather impacts.
