Platts News reports on a new research note from Daniel Scott of Cowen Securities released on Thursday that contains bad news for met coal producers.
Platts notes buyers' sentiment weakening in recent weeks with the marketplace and research company's low-vol spot price assessment falling to $161 a tonne yesterday down from $173 tonnes on February 21.
Cowen explains why despite China's surging steel output – up 10% in February to a new record of 2.2 million tonnes per day – which has defied all expectations of a slowdown, the outlook for coking coal is not that rosy:
"Though recent Chinese import and steel production data registered at elevated levels, high inventories and weakening steel prices may pressure met coal pricing," the note said.
The US and Europe, given public spending pressures, are unable to greatly boost spot demand, leaving China to determine direction for met coal prices, the bank noted.
"Absent a definitive infrastructure policy from the government, we expect that high stockpiles of finished steel products should lead to an inflection point — whereby ample steel supply causes further drops in steel pricing — squeezing mill margins and pressuring input pricing lower."
China may be more focused on driving consumer-led demand for economic growth as it strives to manage inflation rather than infrastructure, it said.