Metallurgical Coal Market Dynamics

Metallurgical coal is set to transition into a market surplus by 2025, according to BofA Securities analysts.

Current Market Situation

Since 2021, the global met coal market has experienced a persistent supply deficit. Key suppliers like the United States and Mongolia are increasing output, while demand, particularly from China, is slowing down.

BofA predicts that by 2025, these changes will result in a market surplus, likely pushing prices downward.

As of now, Australian hard-coking coal prices are around $180 per tonne Free on Board, affected by sluggish steel production and increasing coal supply. Despite falling prices, suppliers remain resistant to selling below $200 per tonne, considering freight costs from China to Australia at $13.5 per tonne.

If prices continue to decrease, especially in North America, some producers may cut supply due to unprofitability.

Demand Declines from China

A significant driver of this projected surplus is the declining demand from China, the largest coking coal consumer. The steel industry faces challenges due to a slump in the real estate sector, leading to reduced steel prices and output, which in turn decreases met coal demand.

Although the People’s Bank of China is attempting to stimulate the economy, credit demand remains weak, limiting the prospects for a sustained recovery in steel demand.

India’s Role in the Market

On the other hand, India is becoming an important driver of coking coal demand due to its focus on infrastructure and housing projects. Indian steel production is expected to increase by 12% year-over-year, making India a growing consumer of met coal despite the overall market trend toward surplus.

Even with this increase in demand, BofA notes it won’t be sufficient to prevent the market from entering a surplus by 2025. Indian steelmakers rely on blast furnaces, indicating a consistent need for coking coal, but global factors are pushing the market toward oversupply.

Future Outlook

Looking toward 2025, while the shift to surplus may limit price hikes, several short-term factors could push prices up. Consistent demand from India and potential supply disruptions from Australia due to weather events like La Niña could temporarily support coal prices.