Met coal prices have inched off its lows in the last few weeks, although remains one of the worst performing commodities over the last 6 months. While iron ore is almost on par, this was coming off a high base of almost $140/t. Met coal prices were considered weak at ~$145/t when they started rolling over at the end of last year.
There are some signs that very low prices are starting to have an impact on supply, while ex-China demand has been a bit better. While that might help push prices a little further, it will be nothing for producers to be too excited about at this stage.
Seaborne supply has been stronger in the first two months of the year from the main producers of Aus, US and Canada, although growth is likely to slip in March.
But its clear that while exports have grown this year, producers haven't been able to push supply into China, with coking coal imports falling.
Chinese interest has dried up as it has been destocking coke as steel production growth has slowed. Coke production was down 5%YoY in March, with pig iron production basically flat over the first 3 months of the year.
This push back from China has shifted prices lower, but also appears to be impacting Chinese met coal production (or reducing producer inventory).
This is finally a step in the right direction that Chinese domestic supply is being impacted by low prices. Although its not clear how persistent this weakness will be.
Seaborne producers have had to look elsewhere to push supply given Chinese demand has been so bad. There are areas of growth, with crude steel in key importing countries up ~3%YoY in the last few months.
European steel production has also been better from a YoY perspective. That said, it is only on par with 2012 levels in 1Q13, which is hardly strong given the depth of declines over the past few years.
This has been helpful, although clearly not enough to absorb the push back from China in the last quarter or so.
So is there a light at the end of the tunnel? It does appear that Chinese coke stocks are now much lower and the end of this destocking should boost Chinese demand. We should continue to see ex-China growth at similar rates seen currently.
That should see prices rise a little further, although its still not clear on how persistent the declines in Chinese domestic supply will be. So prices should go up, although pressure on producers to cut costs is likely to remain intense.
