Negotiations could still get into gear with a rush to achieve a settlement prior to the end of the Japanese fiscal year, but it is looking increasingly likely that this year could see an exceptionally protracted and hard fought negotiation. Hard coking coal deals into other markets are largely on hold until after the Japanese settlement –negotiations continue on contract volumes, terms and conditions, but final pricing arrangements are being deferred until after the Japanese settlement.
Hard coking coal producers point to continuing tight market conditions and the likelihood of ongoing weak supply into seaborne markets this year as a justification for a substantial price rise. In 2001 Australian exports of hard coking coal increased by 3.5 Mt to 64 Mt, but this was more than counterbalanced by falls of 6.4 Mt out of the United States, and about 1 Mt out of each of Canada of Poland. This represented a net fall in 2001 of around 5 Mt, out of a total seaborne hard coking coal market of some 125 Mt.
Looking to 2002, growth in Australian hard coking coal exports is expected to be anaemic, due in part to closures of numerous longwall hard coking coal mines. It would also be a brave man to predict a major turnaround in US coking coal exports this year – they were down 55% in January. Canadian coking coal exports will increase by 2 Mt this year, but Polish hard coking coal exports are expected to remain static at best.
On the demand side, steel demand has survived the recession better than expected and it appears increasingly likely that the world economy will recover strongly this year. World blast furnace iron production was only down 0.1% in 2001, despite world industrial production falling into negative territory for the first time since 1982. Although there will be some steel de-stocking issues to deal with during the first half of this year, it would be reasonable to expect a slight increase in world blast furnace iron production over the full year.
Put simply, the worst times for the steel industry are probably behind us. Increased protectionism in the United States is not expected to have a major net impact on demand for seaborne coking coal – a revived US steel industry would siphon more US coking coal off the export market, in fairly equal measure to losses in coking coal exports to steel exporting countries such as Japan. The picture is similar with regard to recent EU steel tariff increases. The unexpected resilience of coking coal demand through the depths of the recession has prompted us to revise our thoughts on coking coal markets for this year. With little change expected in either supply or demand this year, the seaborne hard coking coal market may well remain in slight deficit through most of this year.
The mini-recovery in steam coal spot prices around the end of last year is looking increasingly like a temporary blip on the overall downward trend. Steam coal demand will, of course also benefit from world economic recovery this year, as well as the renewed strength in oil prices. We can expect marked oil price volatility as US policy with regard to Iraq continues to unfold. But growth in oil supply is expected to continuing to outstrip demand, so the price of oil will fall again if the United States pulls back from direct military intervention.
Growth in steam coal exports from Colombia, China, Indonesia and Australia is still expected to be adequate to cover demand growth. Our forecast for Japanese fiscal 2002 contract prices remains unchanged at a fall of 7%.
