Coking Coal Price Chart

Picture of Coking Coal Price Chart

It's only the 5th, but the year to date fall in the price of coking coal has already reached 8%. The steelmaking raw material is also a round $100 below its multi-year high of $308.80 per tonne (Australia free-on-board premium hard coking coal tracked by the Steel Index) hit in November. On Thursday the price dropped another 4.5% to $208.10 a tonne, the lowest since September 29 and one of the biggest declines (for the spot price) on record.

In 2011 floods in key export region in Queensland saw the coking coal price briefly trade at an all-time high $335 a tonne. With demand both more diverse and less predictable, the increasingly widespread transition towards market-based pricing couldn’t be more timely Still, metallurgical coal is up 150% over the past year  and averaged $143 a tonne in 2016 (about the same as it did in 2013). There was a more than $100 differential between the spot price average and the fourth quarter contract benchmark.

Quarterly contracts are negotiated between suppliers from Australia and Japanese steel mills and it's how most of the seaborne trade is still conducted. Spot is now at or even below Q1 contracts, but according to a new note from the Singapore Exchange, 2017 may prove a landmark year in the development of the international coking coal derivatives market: Following a volatile H2 2016, the evolution of coking coal pricing is at an important inflection point.

In recent months, spot market pricing and the quarterly price fix have frequently diverged to unprecedented levels, placing what may prove to be fatal strains on the legacy bilaterally-negotiated mechanism. The international market has seen structural change in recent years, with Chinese and Indian imports now representing key components of seaborne demand. With demand both more diverse and less predictable, the increasingly widespread transition towards market-based pricing couldn’t be more timely.

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The stunning rise in the price of coking coal shows now signs of reversing, and the nearly three-fold rise in the price of the steelmaking raw material since hitting multi-year lows in November last year has pushed the quarterly benchmarking system to breaking point. Metallurgical coal was exchanging hands at $213.40 on Tuesday according to data provided by Steel Index as it consolidates at higher levels following weeks of panic buying not seen since 2011, when floods in key export region in Queensland saw the price touching to $335 a tonne.

Source: SGX A new research note Adrian Lunt, head of commodities research at the Singapore Exchange, says the traditional quarterly benchmark mechanism has "arguably been losing relevance for some time, but the recent spot market volatility has put it under potentially fatal strains": The commoditisation and rising adoption of indexation has been a key feature in the seaborne coking coal market in recent years.

In recent years the quarterly settlement has largely followed the spot market, and a prolonged period of price stability perhaps enabled the quarterly benchmark to persist (albeit pricing an ever-shrinking portion of the international market). During Q3, the daily spot price averaged almost $133 per tonne, approximately 44% higher than the Q3 quarterly benchmark agreed in late June. With spot and benchmark pricing deviating more than ever, strains are likely to persist on the outdated quarterly pricing mechanism.

Continued market volatility could spur a more widespread transition to index-linked pricing over the coming months, which may in turn serve as an important catalyst in the development of the international coking coal derivative market.

Hazel Gordon

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