Met coal prices have lifted, although still remain very depressed. The latest global steel output data show that ex-China markets remain slow, with some markets potentially being eroded by a pick up in Chinese steel exports. Chinese apparent supply also remains strong given where prices are, with the unexpected strength in Chinese steel production the key positive.
Outside of China, steel production remains slow. European markets have finally stopped falling YoY, with leading indicators suggesting some growth in the coming months as production ramps up post summer.
But other key markets that rely on coking coal imports have weakened in August despite better leading indicators in most parts of the world. In particular, Korea and Japan were quite a bit lower than this time last year, which is perhaps partly a function of increased Chinese exports as steel prices have recovered a little.
With ex-China demand broadly stable along with seaborne supply, it has been up to China to drive prices higher. And this China driven strength has been all about the demand side, with pig iron and coke production rising strongly in the last few months.
This is in stark contrast to the same point last year, where the weakness in pig iron saw a decline in coke production as mills destocked, ultimately impacting coking coal demand much more heavily than the headline stats would suggest.
It has been surprising that apparent Chinese met coal production has continued to show small YoY growth even though prices are so weak.
It does seem some high cost producers have managed to aggressively cut costs, with maintaining production rates central to productivity gains and lowering costs per tonne.
But many met coal producers are still in a precarious financial position, so at current prices I'd expect domestic supply to remain under pressure.
But it does seem like we need the rest of the world to put in stronger growth to get a better recovery in met coal. Perhaps the combination of better demand from Europe and the seasonal supply difficulties heading into year end will be the tonic that will support a further lift in prices.
