global coking coal market dynamics and the growing role of ... · •coking coal prices and...
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Commodities Deutsche Bank
Global Coking coal market dynamics and the growing role of scrap steel in the China steel complex Bryan Duncan
November 2014
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Shanghai Pudong Before and After
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China SnD model
2015 - Slowing growth in capacity Pick up in consumption. Sharp deceleration in consumption from 13’ to 14’.
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Steel : Chinese property longer term view
• China’s demographic is very different to the 2000’s.
•Demographic pressures and shifting consumption patterns limit China’s steel demand below 800mt.
•Consumer- orientated steel demand remains healthy.
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Steel : Chinese property longer term view
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Steel : World Steel Outlook
• Long-term India’s steel consumption can grow at 6-8% pa •India’s steel demand should rise to 149-186mt by FY 26 requiring 180-225mt of steel capacity. •Japan, Korea and Taiwan’s growth prospects are limited. •Latest Soufun weekly property sales stats show 12% decline YoY, better than previous 14% decline; and 17% increase WoW, much higher than previous 5%.
•Steel consumption in EU may fall after 2015 •North America is expected to recover as the economy picks and shale gas expansions drive niche steel products demand and auto picks up. •Positive steel-demand outlook for emerging markets.
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•Scrap is used in BOF’s as well as EAF’s.
Steel : Scrap will displace coking coal demand
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Steel : Scrap will displace coking coal demand • Scrap is a serious long-run threat to iron ore in
China
• Scrap generation lags steel consumption by up to 20 years
• China could be generating 150mtpa of scrap from 2020, up to sixfold.
• China’s scrap generation will take off later this decade.
• Scrap accounts for the majority of US steel production
• Scrap is the key threat to iron ore & coking coal
imports into China.
• China’s share of EAF production remains very low.
• China obsolete scrap generation could be around 110 mtpa by 2020.
• Scrap imports have declined as domestic availability has improved.
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Coking Coal: Technical factors
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Coking Coal: Differences in Pricing factors
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Coking Coal: Seaborne pricing outlook
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Coking Coal: Pricing factors
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Coking Coal: Pricing factors
•Premium hard coking coal prices have stabilized around the US$112/t level, capping several quarters of consecutive declines. At the moment, the stream of announced production cuts and the downward trend in unit costs in Australia are two forces pulling prices in opposite directions
•Under the newly signed FTA agreement that Australia has signed the 2 month old 3% tariff is removed.
•The immediate effect of the FTA was subdued,, indicating that the key drivers continue to be quality , weak demand, while major restocking efforts remain low as steel mills restocking on a as need basis.
Prices rose to RMB 800/T & have Rose since August as part of Winter Restock programs
Spot pricing rose to US$ 112/T for the week up US$ 7/T from the lows in August.
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Coking Coal: Chinese domestic pricing environment
•Coking coal prices and coke-coking coal spread stayed the same.
•China benchmark coking coal (Liulin No.4) price maintained at the historical low of RMB800/t.
•Australia prime coking coal price maintained at USD112/t.
•Coke-coking coal spread stayed at RMB275/T, as coking coal prices rose.
•Coking coal inventory days at coke plants increased 1 day from 18 days to 19 days.
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Coking Coal: Supply demand factors
•Coking coal inventory days at coke plants increased 1 day from 15 days to 16 days.
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Coking Coal:Cost curve & forward curves
•Miners cut cost more than expected. •Mines did not close quickly even loss making. •Mines stayed open despite loss making in hopes of recovery. •Access to low-cost financing has helped miners stay in business. •US bankruptcy laws support operations. •Chinese owned mines will not close unless they lose significant money.
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Xie Xie
Bryan Duncan General Manager – Deutsche Commodities Trading Ltd Weixin : Bdunc2000 Email: [email protected]