Will Flooded Met Coal Impact US Mills?
Timna Tanners, analyst with UBS Metals & Materials, gives a few pointers on the impact of flooded met coal on US mills:
“Flooding in Queensland, Australia has left half of the world seaborne metallurgical coal under water. Our colleagues estimate it take 2-6 wks to dewater a flooded open pit once the rain stops. At this time it is difficult to know how impactful the floods may be, but already spot met prices are seen rising to ~$300/t from ~$225.
More than half the U.S. production of steel is mini-mill based, and therefore uses scrap and not met coal and iron ore. We spoke to U.S. Steel and AK Steel, the two exposed names under our coverage, and they reiterated they have annual contracts for coal (unlike global peers) and would expect no disruption to entirely U.S. based coal supply. Coal prices will rise into 2011, but AK said it locked in a 2011 annual price before the floods, and US Steel said most of its pricing had been finalized.
U.S. benchmark HRC prices have already risen $220/short ton to $740 after a rapid succession of price hikes driven largely by scrap prices. A $100/t coal price hike equates to about a $50/t increase in the cost of steel, so would already be more than covered by U.S. mill price hikes. But to the extent global prices rise in line with more spot-oriented global coal costs, fewer imports can support U.S. prices. Steel prices and material costs can trump a weak Q4 for now. The time Aussie coal is flooded and the next scrap price move are key. We hear Feb scrap prices may be sideways and see limited further steel upside. Top picks are ATI, SCHN.”