Coking coal mine shutdowns in China and a restocking cycle in India are compounding a global shortage that has sent Australian prices up by 65pc since May, and Chinese import prices towards $300/t.

China's ban on Australian coal imports since October has pushed its import prices to record premiums above fob basis prices, but the gap has narrowed as ex-China buyers swap out higher-priced Canadian and US coal to buy more Australian coal. Spot supply has tightened this past month with fewer July cargoes and there could be delays after an 18 June derailment shut the 70mn t/yr Blackwater rail line for three days.

The Argus premium hard coking coal index rose by $69.65/t, or 65pc, to $177.40/t fob Australia over 1 May-22 June, the fastest gainer in the ferrous sector over the period.

Prices into China have also begun to move higher on mining curbs ahead the 100th anniversary of founding of the Chinese communist party in early July. Truck shipments from Mongolia, one of China's largest suppliers, tumbled below 1mn t in April as border restrictions tightened from late March on rising Covid cases.

The cfr China premium low-vol hard coking coal index rose by $63.90/t, or 28pc, to $289/t over the same period, with around $15/t of it gained over the past week. Deals were reported for US Blue Creek at $291/t cfr China late last week. US Oak Grove coal has been offered at $300/t.

The fast-increasing cfr China prices have shifted spot purchases to a floating basis instead of fixed-price basis, particularly by state-controlled mills, given the volatility.

China also suspended some domestic mines following a spate of accidents and to avoid severe accidents around major events. But the shortage could be temporary as Chinese mills expect domestic mines to resume operation after 1 July.

The tight supply of top tier seaborne coals could similarly be short-lived. Australian mining firm BHP cuts its production guidance to 70mn-73mn t in April, but that guidance only runs to 30 June. BHP may have scheduled routine mine maintenance in July and cargoes could rebound in August, in time for Indian mills that need to restock before the end of August.

Inquiries from India have picked up this week as most Indian steelmakers will have to restock by late July or early August to avoid running critically low on stocks in late August.

Prices near $300/t cfr China for Canadian and US coal have pushed European and Brazilian mills that are in a position to include Australian low-volatile coals in their blends to look at lower-cost Australian cargoes to meet their requirements.

Prices of lower-tier coking coals have risen the quickest across the ferrous sector in June.

Tier two mid-volatile prices have risen by $38.70/t, or 33.7pc, to $153.60/t fob this month, while fob Australia prices for semi-soft coal and pulverised coal injection (PCI) prices have risen by 29-34pc this month.

The segment has gained support from a spike in thermal coal prices and steelmakers moving down the value chain to secure supply.

A south American buyer is understood to have bought a Panamax cargo of Lake Vermont at $152/fob Australia earlier this month.

But lower-tier met coal producers are restricted by their ability to offer sufficient spot volume, following supply cuts and a shift in volumes into term contacts to buyers in the ex-China region.

PCI and semi-soft prices were pushed higher by the Australian NAR 6,000 kcal/kg index, which rose by $38.64/t, or 44pc, to $126.83/t fob Newcastle over 4 May-22 June. Many Australian thermal coal producers are sold out until at least September. China's utilities face tight thermal coal supply with pandemic limits on mining and hotter-than-average summer accelerating coal burn.

By Chris Newman, Dylan Wong and Parvin Chong

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