(The opinions expressed here are those of the author, a
columnist for Reuters.)
* Graphic of China's coal imports: tmsnrt.rs/2lj1BS0
By Clyde Russell
LAUNCESTON, Australia, March 1 Bullish and
cautious aren't usually words found in the same sentence, but it
appears that coking coal miners are upbeat about the prospects
for the steel-making fuel, though not to the extent of choking
off price gains with increased supply.
Witness the comment from Don Lindsay, chief executive of
Canada's Teck Resources, North America's largest
producer of coking coal and the second-biggest seaborne
"I'm feeling excited," Lindsay told Bloomberg Television on
Monday while attending a conference in the U.S. state of
Florida, noting that coking coal prices have turned around in
the last 10 days, with forward prices gaining.
Australian free-on-board coking coal prices rose to $158.70
a tonne in the week to Feb. 24, up 5.8 percent on the prior
week, although still well below $255 a tonne at the end of last
But after being bullish, Lindsay turned cautious.
"In this business, if you add too much capacity you put the
market into surplus and you hurt the whole rest of your
production," Lindsay said. "If we brought out another 3 to 4
million tons and ended up causing a price reduction, you can't
make the money back."
Teck has the ability to add to its output, but is waiting
for the steel industry in India to take off, as well as watching
policy developments in China.
CHINA STILL THE KEY
China remains key for the outlook for coking coal, with
policy decisions likely to drive both short- and medium-term
China's approach to economic growth will be crucial for
steel demand, with the market watching to see if Beijing will
continue measures to stimulate infrastructure spending and
construction, while at the same time shutting down excess steel
Policies around coking coal will also be pivotal as China
tries to limit pollution and appears to take a harder line on
North Korea, its nuclear-armed neighbour and a major source of
China imported 1.45 million tonnes of coal from North Korea
in January, down 28 percent from December, as U.N. Security
Council sanctions came into effect.
The January imports account for almost 20 percent of the
annual total China is allowed to import from North Korea.
However, Beijing said on Feb. 18 that it would immediately
ban all imports of coal from its volatile neighbour. Although no
reasons were cited, the move came after Pyongyang tested an
intermediate-range ballistic missile and the apparent
assassination in Malaysia of Kim Jong-nam, the half-brother of
ruler Kim Jong-un.
If China does stop importing North Korean coal, it creates a
potential shortfall of around 20 million tonnes of coking coal,
using the 22.48 million tonnes imported in 2016 as a guide.
To put that figure in perspective, BHP Billiton,
the world's biggest exporter of coking coal, produced 21 million
tonnes of the fuel in the half year to December.
BHP said in its half-yearly report on Feb. 21 that it is
keeping its production guidance for coking coal unchanged at 44
million tonnes for the 2017 financial year.
It's quite likely that BHP could increase its output, or
commit to doing so, but similar to Teck, it chose to express
caution on the outlook, saying in its results presentation that
the "application of China's coal supply reform policy is a
source of short-term uncertainty."
It seems that for now at least, the major coking coal
producers like what they see, but aren't quite convinced enough
to place a bet by boosting output.
(Editing by Richard Pullin)