Iron ore may have lost touch with reality but coking coal is beginning to rediscover it, following thermal’s lead. The former is at $82.25 today as its crash pauses, dropping recently from $112:
And coking coal is now plunging too from its recent highs at $318, from Macquarie:
The MetalBulletin premium hard coking coal spot price assessment (basis FOB Australia) took a dive on Friday, dropping almost $22/t DoD to $270.72/t. This brings the week’s declines to just over $38/t. This sets an interesting scene for the 1Q17 quarterly contract talks, which have commenced with at least two major producers tabling offers in excess of $300/t. MetalBulletin quotes a source attributing the spot price correction to the easing of supply tightness in China, with branded material offered on trading platform globalCOAL at $270/t and unbranded offers coming in at $265/t.
The chart:
This raises the prospect that Australia will never see much of the last up-leg in the coking coal price. If I were on the buy side of quarterly contract negotiations I would certainly be holding out as long as possible to ensure that the crashing spot price headed back toward the present $200 contract price. We shall see.
For iron ore this should signal the end for it as well but, then, it should never have taken off at all so who knows when it will roll? Steel mills should have driven down iron ore when coking spiked to recover margins. As coking falls their margins will improve so Banana Man might think that output will rise and buy even more irons ore. Or get spooked and run.
Supply will kill it sooner or later but reading the mind of Banana Man is impossible.
