RESEARCH: Key takeaways from Coaltrans Asia; what to expect for scrap, metallics demand in China

• Fastmarkets analysts were invited to present our outlook for the coking coal market at Coaltrans Asia, held online on November 23-25. One of the key topics at the event was the trade tensions between China and Australia, which overtook Mongolia to become the largest coking coal exporter to China this year. But we do not see the current ban being sustainable in the long term because Chinese mills are struggling to find alternatives.
• The Chinese import ban on coal is providing upside support to the price for iron ore pellet, however. Because there is no need for sintering, and due to the lower levels of impurities such as silica in the high-grade pellet product, the use of pellet reduces blast furnace slag volumes, thereby decreasing coking coal and coke usage. Pellet stocks in China proved remarkably stable in September but have since fallen dramatically, in a further sign that demand has been increasing in more recent months at a disproportionately faster pace than other iron ore products.
• The restart of the imported scrap trade flows is likely to eventually bring China’s local price closer to parity with international prices. In the near-to-mid-term, after international scrap prices adjust to changed trade flows with possible short-term spikes, Chinese local scrap prices will then come under pressure, consequently adding pressure to import metallics prices. In the longer term, the more affordable scrap will encourage the much-spoken-about shift to electric arc furnaces (EAFs), with demand and prices for iron metallics also finding some support. And the potential restart of ferrous scrap imports into China next year will bring additional competition to the Chinese market, with price attractiveness remain key to sustain demand for imported pig iron and HBI in China.

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