Coking coal undermines iron ore bounce

As we know, iron ore has enjoyed a good bounce from its lows of almost 30%. Its steel partner, coking coal, however, has not. From ANZ today:

Newcastle front-month coal futures declined 1.5% to USD85/t, as demand conditions remain soft. Richards Bay could get some traction from Indian buyers as end-users call for negotiations this week for Nov/Dec tonnes, although subbit coal markets from Indonesia appear directionless ahead of a big utility tender. Other bulks prices also declined as market participants were uncertain on whether recent China domestic steel gains could be sustained. China’s top steel producer Baosteel said they would keep product prices unchanged in November. Iron ore fell 1.6% to USD115.8/t.

The two commodities do not always move in lock step. But they have a high correlation:

At $145, coking coal has not budged from its 30%+fall over the past several months. This does not bode well for the recovery in iron ore prices. Either we’re going to see coking coal prices bounce on the resumption of fundamental Chinese steel demand or once the restocking impulse at work in the iron ore market passes weakness is going to resume.
ANZ Commodity Daily 724 121012

David Llewellyn-Smith
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Comments

  1. Either we’re going to see coking coal prices bounce on the resumption of fundamental Chinese steel demand or once the restocking impulse at work in the iron ore market passes weakness is going to resume.

    Or the Chinese have figured out how to make steel without coking coal.

    It seems that its not Australian miners who are God’s chosen people, its West Australian miners who are the truly holy ones. Who needs that stinking east coast coal anyway?

  2. Is “Dutch disease” merely an excuse for incompetence?

    http://www.voxeu.org/article/natural-wealth-it-blessing-or-curse

    “In fact, the handling of macromanagement challenges that typically accompany natural resource booms in natural resource-rich countries (volatility, risks of overborrowing and overconsumption, and crowding out of intangible wealth-intensive manufacturing) can in most cases be traced back to governance quality.”