Australia has been suffering a serious negative impact due to its recent floods. The steel industry has been hit directly as it strongly depends on coal supplies, half the total global volume of which is shipped out of Australia and feeds integrated steel plants worldwide.
Scrap prices since December 2010 had been on an upward trend, lifting finished steel prices and, now that the availability of coking coal has become a problem, the question of where such market conditions will lead finished steel prices is becoming a major issue.
These days, reports coming from Australia indicate not only force majeure declarations by the major miners and coal suppliers, but also indicate interruptions of railway transportation. Stockpiles at ports have reached critically low levels. Queensland predicts a cut by as much as 10 percent in coal output, and normal mining is expected to resume months from now. Coking coal prices ex-Australia have reached as high as $280-300/mt FOB levels and even $350/mt FOB levels for premium hard coking coal for February/March shipments. Prices vary depending on grade and quality of material.
The situation in Australia is expected to cause an increase in the coking coal tonnages shipped out of the US and other alternative supply sources this year, besides causing stronger prices.
For the steel industry, the stability of costs in order to sustain a healthy volume of production is as crucial as the supply-demand balance.
The sudden increase in costs might squeeze some margins during the transition period, and inventory levels at production sites may play a key role in the endurance of the steel mills as they could be challenged by cargo cancellations or price renegotiations.
The key issue at this point will be to what extent steel production will be supported by consumption in all markets worldwide. It seems certain that all players in the industry will be up for good volumes of transactions in the forthcoming period as they seek to avoid being hit by a supply bottleneck.