The supply situation of coking coal is getting increasingly frightening. It is not so important how much the prices will rise this year. But, what will happen to the potential demand and supply situation in another ten years from now?
As per some estimates, hard and semi hard coking coal trade volumes in the international market will rise from about 166 million tonne in 2009-10 to 186 million tonne in 2011-12 and to 279 million tonne in 2020.
This means, considering a rather conservative estimate for China, which did not take into account the country current position in the coking coal market, the world will run short of hard and semi hard coking coal by as much as 26 million tonne in 2020-21.
It is worth remembering that China imported about 36 million tonne of coking coal in 2009 and has already booked, according to some sources, more than 24 million tonne in the first half of 2010. If the country’s coast based steel mills are to be run economically, they might go for much higher levels of imports.
Even India potential is underestimated. If all the projects on paper are commissioned, the world coking coal market will go haywire. This means, coking coal will force technology change in the steel industry. There are not many options left either.
Alternatively, there will be massive exploration for such resources anywhere they are available.
The problem is that irrespective of the reserves position, what counts at this moment, is not that presently about 62% of the total coking coal that reaches the world market comes from Australia, but the fact that till 2020, nearly 58% of the incremental supplies are expected to come from Australia only despite massive efforts to explore and mine coking coal elsewhere in the world.
Thus, Australia will have an overwhelming play in the world seaborne trade of hard and semi hard coking coal. Indian steel makers will have to accept freight disadvantage if they have to depend on imports from Canada or the US.
This is bad news for steel makers in Japan, Korea and now China. Coking coal producers, like Australia, will have a commanding position in future price negotiations.
Also, the global coking coal market is oligopolistic and only a few players control most of the good resources.
Although huge price incentives have lured...