Changes to coking coal and coke markets could lead to higher steel prices, an acceleration of the steel industry’s green transition, and wider price differentials for low-grade iron ore.

Last year was a volatile one in global commodity markets. Demand for coking coal, an essential raw material in the production of steel, was extremely strong as the wider global economy recovered from its sharp contraction at the earlier height of the COVID-19 pandemic—even as supply chain issues constricted availability. Safety challenges and flooding affected domestic mines in China; border closures between Mongolia and China, as well as strikes in the United States, also curtailed trade. In addition, ongoing diplomatic tensions between China and Australia compounded the situation.

This confluence of events created tightness in the market and contributed to surging prices for coking coal. The price of hard coking coal (HCC) continued a rally that started in October 2020—reaching record levels of $600 per metric ton CFR China¹ before falling sharply in November and stabilizing at prices of around $400 per metric ton CFR China (Exhibit 1). At October levels, coking coal accounted for over half of the cost of the raw materials needed to produce a metric ton of steel via a blast furnace—a rare occurrence by historical standards.

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