Coking coal outlook remains optimistic in medium to long...

Coking coal outlook remains optimistic in medium to long term

Global coking coal market remained moving low price groove for the past 18 months in tandem with the sinking fortunes in steel industry. As capacity rationalization takes center stage with abysmal finished demand and industrial growth supply-demand dynamics has tilted unfavorably. Price of coking coal after the surfeit in spring of 2011 touching USD 330 per tonne on force majeure condition has evaporated.

Emergence of USA as competitive supplier has altered market dynamics significantly with price levels hovering in the band of USD 150-172 per tonne in subsequent quarters. However the spot price remains even worse at USD 140-150 per tonne.

However despite European mayhem potential strength in Chinese and Indian economy continue to fuel aspirations in the medium to long term. Despite despondency in 2013 with forecast hovering around USD 170 per tonne expected to taper off around USD 155-160 by the year end experts firmly believe that eclipsing USD 200 per tonne won’t be far cry with Asian economies and steel production accelerating in 2014.

Most of the developing economies are undergoing demographic transition with nearly 3 billion people are moving into the middle class. India alone with projected steel production of at least 150 million tonnes by 2017 expects to touch nearly 100 million tonne of import from 31 million tonne in 2012. Like-wise in China the unbridled steel production remains reality despite the growing shrill of over production. China's economy continues its expansion at an amazing pace with focus on rural and semi-urban regions. Even though any meteoric turn of fortunes is ruled out with government remaining focused on stability the demand for raw material is unlikely to wane.

Despite recalcitrant economic crisis in Europe US and Japan are showing distinct signs of turnaround. Once global steel production returns to healthy levels, it won't take long for coking coal prices to rise above USD 200 per tonne.

Apart from the market dynamics escalating cost will add to the compulsions of miners to maintain levels above USD 140 per tonne at least to maintain viability given the major CAPEX incurred.