The new NCIG terminal at Newcastle port in Australia which is alleviating bottlenecks in the major Hunter Valley coal chain and helping to boost supplies may soften market dynamics, analysts at the Australian investment bank said in a report Monday.
"We expect the semi-soft discount to rise from 21% in 2010 to 28% in 2015," Macquarie said. "We note that while we expect the premium end of the market will continue to be fundamentally tight, both volumes and prices of semi-soft and PCI coal are likely to continue to show relative volatility as
they swing in and out to balance an ever-more dynamic market."
The Q4 benchmark hard coking coal price at $209/mt FOB Queensland and current spot prices of semi-soft, said to be around $140/mt FOB Newcastle, would put that discount at around 33% right now. But for Q2, inaugural quarterly Australian benchmark contracts were done at $200/mt for hard coking coal and $167/mt for semi-soft, or a 16.5% discount to its premium cousin, according to producer statements and sources in the market.
SEMI-SOFT USE MAY INCREASE LONG-TERM
Semi-soft coking coal, typically mid- to high-volatile coals with weaker coking properties, is used by mills in their coke blends to save on more expensive hard coking coals, helped by coke technology such as stamp charging, it said. In the long-term a likely upturn in the proportions used in coke
blends is on the cards as integrated mills adapt to taking more of the coal, the report said.
New supply from South Africa and Indonesia to further increase availability is also expected by Macquarie.
Sources have told Platts for the last several months that semi-soft and PCI demand had reduced as mills focused on maintaining coke oven production while steel output has cooled.
Coke batteries produce gas used in the works and are also difficult to easily switch off and on. That makes mills less likely to replace coke in the furnace with PCI and in such periods increase the proportion of hard coking coal, which they may have contracted to take, compared with semi-soft in their blends, they have indicated.
Still, Macquarie said PCI pricing may hold up better than semi-soft, especially for the ultra-low volatile PCI which has a higher replacement ratio displacing coke use in the blast furnace when producing steel.
"PCI rates have been steadily rising over the past 20 years, and given its relative economic benefit we expect this trend to continue, with a cumulative annual growth rate of 8.6% over 2010-2015."
But existing technology at the mills and coke use ratios would limit the upside to potentially greater PCI use per ton of steel produced, the report added.
"It should be noted that, due to the need for burden support, the lowest potential coke rate in the largest furnaces is 280kg/mt iron. Thus, given that only 500kg/mt of carbon reductants are required in an efficient furnace, this limits the maximum PCI consumption to the 220?230kg/mt level - PCI can never be a full coke replacement," the report added.
China Chemical Weekly: http://news.chemnet.com/en/detail-1411716.html
