Prices of coking coal, the steel-making kind, keep soaring mainly due to slowing supply growth from China.

Far seems to be the multi-year lows struck in February, as the commodity has surged almost 150% since then, adding Tuesday a whooping $14.80 per tonne, according to The Steel Index.

Metallurgical coal, which is now trading at a record $195.70 a tonne, has become the best performing commodity of 2016.

The rally has been triggered in part by Beijing’s decision to limit coal mines operating days to 276 or fewer a year. In addition, recent heavy rains in the key mining province of Shanxi, have significantly reduced the number of available roads and damaged other transportation infrastructure, curbing local supplies.

Weather conditions in China’s coal producing regions have given Australian suppliers of coking coal, particularly those in Queensland's Bowen Basin, a much-needed boost.

However, the incredible price rally may also carry some bad news, especially for Anglo American (LON:AAL), which has now been forced to revaluate the asking price for the two coking mines it has for sale in Australia,the Australian Financial Review reports.

Such sale is expected to yield more than US$1 billion, even with Anglo taking a $1.2 billion charge against Grosvenor and Moranbah at its July results, and bidders —including the BHP Billiton Mitsubishi Alliance — are said to be now waiting to see where coking coal prices go next.

http://www.mining.com/coking-coal-prices-go-gangbusters-up-almost-150/?utm_source=twitterfeed&utm_medium=twitter

Jindal Steel & Power has ramped up production at a 100-year-old coking coal mine in Australia and is set to resume operations at another in Mozambique as prices for the commodity more than doubled this year.

The New Delhi-based company is producing about 100 000 metric t/m at Wongawilli mine in Australia’s New South Wales and has sought regulatory approval for resuming output at the Russell Vale mine in the same area, CEO Ravi Uppal said. The company, which is one of India’s largest steel producers, plans to resume operations this month at its Chirodzi coal mine in Mozambique and produce 300 000 t/m, he said.

Metallurgical coal prices have surged and thermal coal has rebounded after five years of declines as China seeks to cut its overcapacity and curb pollution. Output from the world’s biggest producer and consumer of the fuel has fallen more than 10% in the first eight months of the year.

Jindal joins commodity producers including Chinese steel mills and US oil explorers in boosting activity as prices rally, a response that can aid company balance sheets but also sustain the gluts that have plagued the raw materials industry.

Jindal Steel, controlled by former lawmaker Naveen Jindal, has reported seven consecutive quarterly losses and is counting on its steel and mining operations to help generate profits. The company took an impairment charge of 6.26-billion rupees ($93.5-million) on the Australian mining assets in the quarter ended June 30, according to a stock exchange filing on September 8.

Jindal Steel needs coking coal for its 1.7-million-ton-a-year blast furnace in the central Indian state of Chhattisgarh. The company’s demand is set to rise after December, when its four-million-ton-a-year blast furnace in eastern Indian state of Odisha starts operation, according to Uppal. The company uses about half a ton of coking coal to produce a ton of steel.

The Wongawilli mine started operation in 1916, according to the website of Jindal Steel subsidiary Wollongong Coal. Production restarted in July after the mine was placed on care and maintenance status in 2014, the Australian company said.

http://www.miningweekly.com/article/a-100-year-old-coal-mine-in-australia-restarts-as-prices-double-2016-09-14-1

China Shenhua Energy Co., Ltd, the listed arm of coal giant Shenhua Group, sold 34.3 million tonnes of coal in August, down 2.8% year on year but up 9.2% month on month, as sales of outsourced coal rose 23.3% on year and 47.5% from July, the company announced in a statement on September 12.

The company sold 252 million tonnes of coal over January-August, rising 1.8% from the year prior, it said.

Coal sales via northern ports in August gained 3.2% from the year prior and up 4.8% from July to 19.6 million tonnes, with those shipped from Shenhua's exclusive-use Huanghua port at 14.1 million tonnes or 71.9% of its total in the month, climbing 42.4% on year and up 8.5% on month.

Total coal sales stood at 150.6 million tonnes in the first eight months, up 10.3% on year.

Meanwhile, the company produced 24.6 million tonnes of coal in August, falling 0.4% on year but up 4.2% on month. The output over January-August decreased 0.3% on year to 187.9 million tonnes.

As the nation's top coal producer, Shenhua's parallel pricing for key customers and spot buyers in August has helped the company to maintain steady price increase, while giving more say to the market by getting prices of its spot coal much closer to the spot levels.  

It announced that prices of spot coal will be set every 10 days based on the FOB Qinhuangdao of 5,500 Kcal/kg low-sulphur coal (0.6% sulphur) published by industry portal China Coal Resource (sxcoal.com), under the principle of market-based pricing.

After a 16 yuan/t hike in July, Shenhua further increased contract price by 18 yuan/t in August for its 5,500 Kcal/kg NAR coal sold to key customers at 435 yuan/t FOB, including 17%.

In September, Shenhua lifted contract price of the same-CV material by 25 yuan/t to 460 yuan/t, which, though above the expected 15 yuan/t rise, was still lower than 495-505 yuan/t at northern ports in early September.

http://www.sxcoal.com/news/info?lang=en&id=4547206

Peter Poppinga, head of Vale’s iron ore business, said the market had not understood its plans for the ramp-up of S11D, the industry’s biggest new venture, in the Amazonian state of Pará.

“One thing the market is not getting right is how Vale wants to go about ramping up S11D,” he said. “We decided for a phased approach where we will ramp up S11D not in two years but in four years.”

While S11D was seen as a 90m tonnes per year project, the capacity of Vale’s infrastructure in northern Brazil meant it would only add another 75mt of the steelmaking ingredient to a market that has suffered a glut of supply.

“We are not [in] the pure volume game. We think the right approach … is to maximise our margins,” said Mr Poppinga in an interview in London.

During the so-called commodity supercycle, mining companies ploughed billions of dollars into new iron ore projects as China’s rapid urbanisation saw it suck in ever increasing amounts of the raw material.

But much of the new supply only came online as China’s growth started to slow, hitting prices that — at roughly $55 a tonne — are down some 70 per cent from their 2011 highs.

While most of the large suppliers including BHP Billiton and Rio Tinto still have plans to increase production, they are prioritising returns and profitability over volume.

Once its expansion plans are complete, Vale would have capacity to produce 450mt of iron ore annually. “But it doesn’t mean that we are going to use it,” said Mr Poppinga, who forecast that iron ore will trade at $50-$60 a tonne next year.

“It will be with a mature eye on the market and we will always have a focus on the maximisation of our margins,” he said.

Vale, based in Rio de Janeiro, is seeking to cut its net debt by at least $10bn by the end of next year by disposing of non-core businesses and other initiatives.

As well as the downturn in commodity prices, it has been dealing with the fallout from one of its worst mine accidents. The company and BHP Billiton were partners in the Samarco iron ore venture in Brazil where 19 people died when a dam collapsed last November.

While initially the companies hoped they might be able to resume production at Samarco this year, those hopes have been dashed by the complexity of obtaining permission for a restart. “Optimistically we are looking at mid-2017; realistically we are looking at something in the second half of 2017,” Mr Poppinga said.

The companies still face potential legal action in Brazil relating to the dam collapse, which a technical report last month said was due to design and drainage problems.

Mr Poppinga said Vale was still interested in a venture with another iron ore miner, Australia’sFortescue Metals Group, to combine some of their output for sale.

A project to blend Vale and FMG ore could produce a mix more suitable for some customers, allowing them to share gains from a premium price for the blend. “We have tested everything … [but] on the commercial side it is taking longer than we expected,” Mr Poppinga said.

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Iron-oremajor Fortescue Metals has undertaken another round of debt reduction, with the miner issuing a $700-million repayment notice for its 2019 senior secured credit facility.

The company said on Tuesday that the term loan repayment would be made on September 16, and would generate interest savings of around $26-million a year.

“This $700-million repayment adds to the $2.9-billion which we repaid in the 2016 financial year and further reduces our all-in cost base. We will continue to apply our free cash flow to repay debt, lowering our gearing and strengthening our balance sheet,” said Fortescue CFO Stephen Pearce.

http://www.miningweekly.com/article/fortescue-repays-more-debt-2016-09-13

China's steel and coal sectors provide contrasting stories so far this year, with one failing miserably to curb output and the other cutting so successfully it's led to the unintended consequence of higher prices and imports.

China's steel sector, which accounts for about half of global production, continued its recent strength in August, with output rising for a sixth month to 68.57 million tonnes, the National Bureau of Statistics said on Tuesday.

This brought the year-to-date total to 536.3 million tonnes, a mere 0.1 percent lower than for the first eight months of 2015, and putting the country on track to produce more than 800 million tonnes of steel for a third year running.

The resilience of steel output also makes a mockery of official attempts to reduce capacity in the massively oversupplied sector, and questions whether Beijing has the political muscle and determination to actually restructure the sector.

In contrast, China's coal output dropped 11 percent in August to 278 million tonnes, with production in the first eight months slumping 10.2 percent to 2.17 billion tonnes, according to official data.

China has met about 60 percent of its target for 2016 of cutting 150 million tonnes of coal capacity, according to state media, as measures to restrict the number of days mines can operate take effect.

There is little doubt that China's coal sector has met the challenge of removing excess capacity, and the steel sector hasn't.

This begs the question as to what is different between the two, as they should both be subject to meeting the requirements laid down by the authorities in Beijing.

The main difference appears to be the dynamics of price and profitability.

Coal prices started the year at multi-year lows, with the Chinese thermal coal benchmark SH-QHA-TRMCOAL at 370 yuan ($55.39) a tonne.

It has subsequently rallied almost 540 percent to 515 yuan a tonne on Tuesday, reflecting the tightening domestic market.

But it's worth noting that most of the gains have come in the past two months, meaning that for the first half of the year, China's domestic coal miners were still labouring under low prices and many were unprofitable.

The production cutbacks also stoked demand for imported coal, with inbound shipments up 12.4 percent to 155.74 million tonnes in the first eight months of the year compared to the same period in 2015.

This additional Chinese demand has also fuelled seaborne coal prices, with the Australian thermal benchmark Newcastle weekly index surging 39.5 percent so far this year to $70.61 a tonne for the week ended Sept. 9.

STEEL GAINS CAME EARLIER

Unlike coal, steel's gains were made in the first quarter, with benchmark Shanghai rebar jumping 58 percent from the end of last year to its peak so far in 2016 of 2,670 yuan a tonne on April 21.

Since then steel prices have trended lower, with the contract ending at 2,260 yuan a tonne on Tuesday. However, this is still 33.8 percent above what it was at the end of 2015.

The rising steel price led Chinese mills to ramp up output, especially from March onwards, culminating in record daily production in June.

As can be seen from August's robust output, mills have yet to dial back production even as prices start to moderate, and the likely reason is that they are still profitable.

Steel mills are making profits of about 300 yuan to 400 yuan a tonne at current prices, the highest since November 2014, according to Li Wenjing, an analyst at Industrial Futures in Shanghai.

The improved profitability for steelmakers illustrates just how challenging it is for the authorities to cut capacity if money is being made.

China aims to eliminate 100-150 million tonnes of capacity in coming years, with 45 million tonnes planned for this year.

Even if its does cut this amount, it would still leave about 200 million tonnes of excess capacity in the system, assuming mills operated at 100 percent.

If mills operated at a more realistic 80-85 percent of capacity, then China's planned cuts would tighten the steel market, assuming domestic demand and exports remain around current levels.

The market expectation is that Beijing will cajole capacity cuts in the steel sector over the remainder of 2016, but as events so far this year show, this is far from a given.

If steel prices remain at levels consistent with solid profits, it's likely that the mills will resist attempts to curb their output, and history suggests they are quite good at this.

If prices do retreat further, then it will be easier to cut steel capacity, but any sustained success is likely to make it harder to cut more capacity, and may in fact encourage mills to ramp up utilisation rates and output.

So far this year, the Chinese authorities have accomplished what they wanted in coal, but at the cost of higher prices, and failed in steel, because of higher prices.

This shows that interference in markets seldom comes without side effects, and it will be interesting to see if Beijing allows higher coal output to soften prices and continues to tolerate strong steel production in coming months.

http://www.reuters.com/article/column-russell-steel-china-idUSL3N1BQ1O2