Fitch expects coking coal prices to continue to moderate in 2018, as supply grows due to the relaxation of China’s 276-day rule, the recovery from Cyclone Debby, and other producers’ additional supply.

“Demand in 2018 will be influenced by environmentally led winter production cuts to Chinese steel production from November 2017 through to March 2018, and slower steel demand from the property sector,” Fitch says in a report sent to Kallanish. This is expected to result in Chinese coking coal imports in 2018 reverting to 2016 levels.

Coking coal imports into India, Japan and Korea are seen growing in the low to mid-single digits in 2018, absorbing increased Australian production and resulting in displacement of US swing production. China’s efforts to cut air pollution favour premium coal grades. Fitch’s price assumption for hard coking coal in 2018 is $135/tonne compared to an average of around $175/t in 2017.

“Profits and cash flows for metallurgical coal producers surged following the implementation of China’s 276-day rule and have supported investments to increase production from existing mines,” Fitch observes. “With Fitch’s expectation that long-term prices moderate to $110/tonne, some US production capacity is likely to exit the seaborne market.”

Citing CRU forecasts, Fitch says global coking coal consumption should rise to 1.13 billion tonnes in 2020 from 1.12 billion tonnes in 2017. Australian coking coal exports should rise to 203 million tonnes from 181mt, while Chinese coking coal production should fall to 656mt from 666mt.