Coal Seen Rebounding as China Sets Steel Output Record
By Rajesh Kumar Singh and Abhishek Shanker on April 24, 2012
Coking coal prices are set to rebound as early as July from four straight quarterly declines as China and India seek raw material overseas to fire new steel production in the world’s fastest-growing major economies.
Contract prices that fell to $206 a metric ton for the quarter ending June 30 may rebound to average $225 a ton this financial year, based on the mean estimate of 10 analysts, steelmakers and mining companies surveyed by Bloomberg. Contracts of coking coal, a key ingredient used to make steel, peaked at $330 in the June quarter last year.
China, the largest steel producer, is leading demand growth forecast at almost 10 percent this year. It started about 10 new blast furnaces in the past six months, lifting output to a record in March, according to market researcher Custeel.com. India, the third-biggest steelmaker, is set to boost capacity a third to more than 100 million tons by March in a five-year $1 trillion plan to build roads, bridges and railway networks.
“Rising Indian imports will have a positive impact on coking coal,” said Natalie Robertson, an analyst at ANZ Banking Group Ltd. in Melbourne. “The near-term prices will more closely track development in China.”
China may surpass Japan as the biggest coking coal importer by 2015, a position it may eventually relinquish to India, Robertson said.
BHP, Rio
China is encouraging global use of the yuan and allowing more overseas investors in its local capital markets as Premier Wen Jiabao seeks to shift the focus of economic growth to domestic demand from slowing export industries. The government broadened the yuan’s trading band against the dollar to 1 percent from its daily reference rate on April 16, having held the limit at 0.5 percent since May 2007.
BHP Billiton Ltd., the world’s biggest coking coal exporter, rose 1 percent to close at 1,917 pence in London. Rio Tinto Group (RIO), the third-biggest mining company, climbed 1.2 percent to 3,415 pence.
Growth in China slowed more than forecast last quarter to the least in almost three years, prompting economists to predict a rebound as the government loosens policy to counter weak domestic and European demand. Gross domestic product expanded 8.1 percent from a year earlier after an 8.9 percent fourth- quarter gain, the National Bureau of Statistics said.
Demand for imported coking coal in China may rise 37 percent to 63 million tons this year from last year, Australia’s Bureau of Resources and Energy Economics said on March 21. Consumption is projected to increase due to state investment in steel-intensive infrastructure such as highways and rail networks, linking the less-developed provinces in western China to demand centers in the east, it said.
Roads, Railways
Urbanization and infrastructure building in central and western China will fuel “very strong” steel demand, Fortescue Metals Group Ltd. (FMG) Chief Executive Officer Neville Power said on April 3. The 7.5 percent economic growth target Jiabao announced for this year, the lowest since 2004, may result in 5 percent annual increases in steel demand, he said.
Global trade in coking coal may rise 9.6 percent to 297 million tons this year, compared with a 0.7 percent drop last year, the Bureau of Resources and Energy Economics said.
Mongolia, which became China’s biggest supplier of coking coal in July, will probably continue to grow this year, Battsengel Gotov, chief executive officer at Mongolian Mining Corp. (975), said in a March 7 interview.
Restocking Room
“For Europe, China, Japan and South Korea, the main tailwind for metallurgical coal is there’s room for restocking across the world,” Bloomberg Industries analyst Andrew Cosgrove said. “China remains the wild card because Mongolia is stealing seaborne volumes by exporting more land-borne tonnages.”
Aluminum Corporation of China Ltd. said yesterday it will buy 29.9 percent of Mongolian coal exporter Winsway Coking Coal Holdings Ltd. for HK$2.39 billion ($308 million) to boost earnings as its aluminum unit posts lower profits. The nation’s biggest producer of the lightweight metal, known as Chalco, will buy about 1.1 billion shares from Winsway Chairman and Chief Executive Officer Wang Xingchun and become Winsway’s largest shareholder, the Beijing-based company said.
India’s coking coal needs may jump 13 million tons this financial year as its rising appetite for the alloy drives companies to add capacity worth at least $10 billion in the year that started April 1, said Ashish Upadhyay, associate director at Fitch Ratings in a telephone interview on April 9. Indian demand may support coking coal prices as most of the local requirements are met through imports, he said.
