After months of declining prices, coking coal producers are struggling to remain optimistic that demand support will return soon.
This quarter's US$170/metric ton (MT) benchmark coking coal contract, signed by Japan and Australia, is one of the clearest indicators of the current situation. The contract represents a 24 percent decline from Q3's $225/MT benchmark and an almost 50 percent fall from last year's high of $330/MT. Current coking coal spot prices are even worse, hovering around the $150/MT mark. Outside of the Asian market, European prices have also fallen. Reuters reported that Czech coal miner New World Resources (LSE:NWR) has seen fourth-quarter coking coal prices of €102 (US$132)/MT, 20 percent lower than the previous three months. Contractions in manufacturing in China and India are key factors impacting the coal industry. Stimulus and infrastructure spending promised by both countries has given coal investors some confidence that demand will return soon. A recent announcement from Kamal Nath, India's minister of urban development, shows what that demand could look like over the coming years. Nath commented that India's coking coal imports are set to increase by about 100 million MT by 2016 to 2017. The country's port infrastructure will require much improvement if that forecast comes to pass; luckily, India's 12th five-year plan, which runs from 2012 to 2017, includes $1 trillion in infrastructure spending. "In India, growth has preceded infrastructure development. All that we will do in the next five to eight years would not be building for the future but catching up with the past," Nath said. China's stimulus package, also rumored to top US$1 trillion, is bound to boost coking coal prices and will likely cause contract price predictions to rise to at least $180/ton for the January to March contract period.