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Global Tightness May Offset US Met Coal Output Growht


By Brendan Kjellberg-Motton

September 22, 2022 - US coking quality coal output is on course to exceed 2021 levels this year if quarterly output continues at the current rate. But taking into account the elevated prices for thermal coal and the onset of La Nina weather in Australia, coking coal supply is likely to remain squeezed in the months ahead.

US supply responding to strong prices

In the first half of 2022, US coking coal output was stable at approximately 28mn st (short tonnes) from the same period a year earlier, data from the Mines Safety and Health Administration (MSHA) accounting for the bulk of US coking coal production show. If output continues at the same rate as the first half of the year, 2022 output should exceed 2021 by around 3-5pc. But as miners continue to respond to a strong price environment, it is likely that production at US coking coal mines will continue to accelerate, resulting in a stronger increase.

In particular, Arch Resources will continue to ramp up towards 4mn t/yr at its new Leer South high-volatile A mine, which produced 1.2mn st in the first half of the year, while Ramaco expects to increase output to a total of 6.5mn st/yr over the next three years, ultimately tripling its capacity in comparison to the end of 2021.

And there has been a patchy improvement in rail performance in the US, while Covid-19 cases are no longer disrupting mining operations in the same way they were last year. At a major industry event in Europe last week, some US suppliers indicated that rail transportation has improved to a satisfactory level, while others indicate that it continues to constrain their shipments.

External factors to squeeze Atlantic met supply

Despite the likely increase of US coking coal output and recent declines in steel output in most regions, this year's elevated thermal coal prices and the sale of coking-quality coals to thermal end users are likely to significantly diminish the availability of coking coal for metallurgical buyers for the rest of the year. At the same time, the onset of La Nina weather in Australia is likely to limit the country's coal exports, lending support to Asian demand for US coking coals. Australian coking coal exports fell by 4.98pc to 93.14mn t in January-July this year, while Australian thermal coal exports have lagged behind previous years despite strong demand since the start of the war in Ukraine.

It remains to be seen to what extent the expected fall in European blast furnace production in the near future will be matched by a fall in coke output. Coke plants' ability to produce their own gas could incentivise relatively stable coke production for the rest of the year, despite the poor sentiment in steel markets.

The European steel market is currently in a process of price discovery. Major producer ArcelorMittal lowered its hot-rolled coil offer by €40/t last week despite a series of cuts to crude steel output having recently been announced, which suggests that there is demand support for the level of pricing that mills would require in order to comfortably bear current input costs. On 16 September, Hungarian steel producer Dunaferr temporarily hot idled its only currently operating furnace, with a capacity of 600,000t/yr, from until at least late September because of a shortage of coke, bringing the total of recently idled or soon to be idled blast furnace capacity in Europe to over 16mn t.

Like every month since February, July shipments from the US were higher than a year earlier despite a drastic fall in Chinese buying. Total exports rose by 14.8pc on the year to 3.47mn t, while shipments to China fell by 74pc to 288,694t. US shipments to the EU rose by 127pc year on year to 1.19mn t in July, while year-to-date shipments were 39.8pc higher at 8.52mn t.

At the same time, the constraint placed on Australian exports by wet weather and strong thermal demand led to higher US and Canadian shipments to Asian countries outside of China in July. US shipments to India more than quadrupled from a year earlier to 689,807t in July, while Canada shipped 614,368t to South Korea, compared to 59,400t a year earlier and 25.8pc higher than in June. Canada's total exports in July were 45.1pc higher than the previous year at 2.24mn t, while the country's year-to-date exports were 9.75pc higher at 17.12mn t.


Major US coking coal mines 000st
Mine Q2-22 Q2-21 Q2-22/Q1-22 Q2-21 Q2-22/Q2-21
Oak Grove 369.42 418.53 -11.73 443.00 -16.61
Warrior No 7 1,307.82 1,218.72 7.31 1,047.05 24.91
Beckley 277.99 237.78 16.91 298.22 -6.79
Affinity 176.82 198.76 -11.04 234.15 -24.48
Buchanan 946.22 1,147.21 -17.52 1,103.72 -14.27
Warrior No 4 358.33 319.16 12.27 147.81 142.42
Leer 1,204.89 837.60 43.85 1,236.29 -2.54
Leer South 497.20 706.31 -29.61 181.66 173.71
Shoal Creek 146.89 271.07 -45.81 0.00 n/a
Elk Creek 406.64 490.49 -17.10 549.92 -26.06
Panther Creek 465.95 465.88 0.02 366.56 27.11
Kanawha Eagle 450.07 466.34 -3.49 495.36 -9.14
Mountain Laurel 205.60 170.22 20.79 259.26 -20.70



Key coking coal exports in July '000t