SunSirs: Perspective on Recent Coking Coal Price Trends

Recently, Mongolian coal has shown relative weakness in the spot coking coal market, while thermal coal experienced the smallest decline. Australian coal, however, bucked the trend and strengthened.

Increased Mongolian Coal Supply Meets Declining Iron and Steel Output. Since November, customs clearance volumes for Mongolian coal have surged significantly. Weekly average clearance volumes across three border crossings approached 14,000 railcars, marking a 58% month-on-month increase that far exceeded market expectations. This reversal has undermined the previous logic of structural shortages in Mongolian coal. Concurrently, downstream iron and steel production continues to decline. Coupled with weakening essential demand, restocking demand has also significantly diminished. Although downstream buyers engaged in concentrated procurement in October, winter stockpiling intentions have noticeably weakened since November, with coking plants even reducing inventories counter-seasonally. The decline in coking coal prices has further intensified wait-and-see sentiment, delaying restocking efforts. Amid rising supply and falling demand, coking coal inventories have accumulated significantly, primarily at upstream mines, prompting producers to cut prices to boost sales.

Weakness in the thermal coal market has also weighed on coking coal. With above-average winter temperatures nationwide, daily thermal coal consumption has been subdued, and thermal power generation growth has turned negative year-on-year. Coking coal and other coal-chemical products like methanol and ethylene glycol have all declined to varying degrees.

Fundamentally, pig iron output has declined by approximately 19,000 tons daily since early November. If this trend persists, daily production may remain above 2.3 million tons through late December. With recent improvements in steel mill profitability, no immediate collapse in pig iron output is anticipated. Since November, coking coal inventories have accumulated by approximately 2.4 million tons. Assuming stable supply and a reduction in pig iron output to 2.3 million tons per day, December inventories are projected to increase by 2.7 million tons, bringing year-end stockpiles to around 40 million tons—still 10 million tons below last year's levels. However, current spot prices remain largely unchanged from the same period last year, indicating undervalued spot pricing. On the supply side, the recent inverted domestic-international price spread has closed the import window, potentially reducing seaborne coal imports. Domestic production typically weakens toward year-end, and further growth in Mongolian coal imports is limited. Thus, supply will remain relatively weak in the short term, with inventory accumulation likely falling short of expectations.

Finally, regarding the logic that thermal coal is driving the decline: since August, the spot price ratio between coking coal and thermal coal has fluctuated around 1.73, rising to 1.77 in early November before falling back to 1.7 currently—a drop of about 4%. Assuming a projected bottom for thermal coal spot prices at 700-750 RMB/ton and a ratio of 1.73, the corresponding coking coal price range would be 1210-1300 RMB/ton. The impact of thermal coal price declines on coking coal prices is estimated at 0-100 RMB/ton.

As prices decline, import profits for Australian coal have turned negative from 155 RMB/ton, while long-term contract profits for Mongolian coal imports have narrowed to 190 RMB/ton. The likelihood of a sequential reduction in imported coal volumes is increasing, which may alleviate the primary factor currently suppressing the market.

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