With global coking coal supplies continuing to rise even as demand slackens, prices (seaborne hard coking coal contract) of the steel-making input have fallen 22 per cent to $119 per tonne since the start of this year.

While coal miners from Australia, the world’s largest exporter of coking coal, continue to expand output, demand from China remains weak. This is likely to keep the price of coking coal (or metallurgical coal) under pressure. China, which produces half the world’s steel, consumes about 60 per cent of the world’s coking coal. Coking coal is converted into coke which is used to make steel in the blast furnace.

Expanding supply Australia, which accounts for about 60 per cent of the total global supply, exported 137 million tonnes of coking coal until September 2014, up 12 per cent from the year-ago period. Only about two months back, BHP Billiton, the world’s largest miner, and Mitsubishi Corp opened the $3.4-billion Caval Ridge Mine in Queensland, their joint venture, which will produce up to 5.5 million tonnes of coal annually, to start with.

Demand woes On the other hand, the slowdown in China, particularly in the real estate-construction sector, has hurt the demand for steel.

Also, as China rebalances its economy — shifting from investment to consumption-driven growth — steel demand has slowed down considerably. Chinese steel consumption contracted a year-on-year 0.3 per cent to 500 million tonnes during January-August 2014, according to the China Iron and Steel Association.

The outlook for steel demand too does not appear very bright. The World Steel Association estimates steel use in China to grow only 0.8 per cent in 2015, down from the 1 per cent growth forecast for 2014.

According to the Platts China Steel Sentiment Index too, which dropped to 25.61 in November, the lowest since May 2013, steel demand is expected to weaken with a significant drop in the outlook for new export orders.

While the recent interest rate cut, the first since 2012, by the Chinese central bank, has raised hopes of spurring the economy and the demand for commodities, any impact of this will be felt only in the long term. More immediately, demand from the steel-intensive construction sector will slow down, as winter approaches.

India picture India, which is the world’s fourth largest steel producer, sources almost its entire requirement of coking coal through imports, largely from Australia. The limited reserves of coking coal in the country and the poor quality (high ash content and poor coke strength) of the coal being produced here make imports imperative. India’s coking coal imports have been on an uptrend since 2011-12 as its steel production expanded. The country imported 37 million tonnes of coking coal in 2013-14, up 15 per cent from the year before.

A fall in global coal prices last year could have helped fuel the surge. During the June 2014 quarter, imports totalled 11 million tonnes. Globally, coal prices (down 5 per cent since June) are still weak and with steel demand in the country expected to gradually pick up, imports are likely to rise.

But, with India accounting for only a 14 per cent share in imports (among the top coking coal importing countries), a rising domestic demand for coal would have minimal impact on global prices.

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