Record prices due to supply tightness

Australian coking coal prices have traded to record levels this year. Prices broke above US$600/t at one stage in March, a period when there was plenty of uncertainty over Russian coal supply due to the war. Rainfall and floods in Australia also tightened up the supply side. The market has given back a lot of these gains as trade flows slowly adjust, and amid worries over Chinese demand and the expectation that Australian flows will recover as we head into the dry season. However, the market is still up more than 20% year-to-date.

Russian coal flows

Russia is a fairly large exporter of coking coal, making up around 9% of global export volumes, leaving it in a tied third position with Canada among the largest exporters. Therefore the bans we have seen imposed by some countries, along with self-sanctioning, have had an impact on the market. This impact is already evident in Russian coal flows. EU imports of Russian coking coal in March (latest available data from Eurostat) have fallen by around 35% year-on-year, and given the EU ban on Russian coal, these volumes will only continue to trend lower. Japan and South Korea have also reduced volumes, with imports falling 45% and 38% YoY, respectively, in April. However, these reductions have been more than offset by China, which increased Russian coking coal imports in April by 124% YoY. We also suspect that India will look to pick up a larger share of discounted Russian coking coal, which would free up alternative supplies (Australian) for those buyers who are avoiding Russian coal. We have seen India taking similar action when it comes to oil imports.

Coking coal imports from Russia-k tonnes (Apr 22 vs. Apr 21)

Australian exports struggling at a time of need

While the Russian sanctions have raised supply concerns, Australia has struggled to help the market out with stronger export flows. Instead, exports have been under pressure for much of the year due to heavy rainfall in both Queensland and New South Wales. And this follows weaker exports over 2021, with a little over 167mt shipped last year- the weakest volumes since 2012. The latest data from the Australian Bureau of Statistics shows that exports over the first four months of the year totalled 51.8mt, down 7% YoY. This is the slowest pace of exports since 2017 when we saw cyclone Debbie. However, given that Australia is moving further into the dry season, we should see a recovery in coking coal exports. Demand for Australian coal should also be robust given that many buyers will be looking for alternatives to Russian supply.

Trade data is yet to reflect any significant changes in Australian trade flows. In April, 32% of Australian coking coal went to India, compared to 34% in April 2021. It may still be too soon to see India shifting to discounted Russian coal, or at least for it to be reflected in trade data. Also, given the wind-down period in Russian coal flows to the EU, it will likely take some time for this share to grow. There have been reports of increased interest from EU buyers for Australian coking coal.