Steel factories at this moment must be facing a huge dilemma.
When your industrial process involves millions of tons of materials, you can’t exactly click a button on Amazon to get your feedstock – you need to order your inputs months in advance, if not years through a long-term supply contract.
So when prices are sky-high for metallurgical coal as they are, do you continue waiting and increase the risk that you will get no supply, or do you bite the bullet and secure a contract today?
At high prices, you are very unlikely to procure a long-term contract (who wants to lock in record-high prices on the buy side?). But you run the risk of not being able to properly price out your raw product to your own customers. It is a terrible situation.
We have a Q1-2022 pricing article that has the following:
US coal mining firm Arch Resources is offering a January-loading Panamax cargo of Leer high-volatile A coal at $410/t fob US east coast, with expectations of securing at least $400/t fob. The Leer high-volatile A coal continues to command a premium in the market, being particularly well-established in the Chinese market. “We are having trading firms chasing us pretty hard for high-volatile A coal into China,” said another US mining firm that said a European buyer was seeking 30,000t of high-volatile A coal last week. “We would be pushing for above $400/t fob ourselves.”
(fob US east coast, for those unfamiliar with shipping, means that once the coal is loaded on the east coast ship, the buyer pays and it is the buyer’s risk in the event of any catastrophe).
US$400/ton is a lot of profit, especially on a company with a US$50-60/ton cost structure. How long will this party last? Will any producers be able to supply long-term contracts at these prices, or will demand for steel plummet?
This is a party in the coal mines, to be sure. It will also drive a lot of investment to “steel without coal” (hydrogen, electricity, etc.) that is being driven by ESG anyway. The party will end but how long from now is a great question!
I’m sure some of that electric arc furnace production will be fuelled by coal electricity generation 🙂