Mainland is at the epicenter of all maladies afflicting steel, iron ore and coking coal market. Even though steel production has surged to 61.83 million tonne of crude steel in February, an all-time high of 2.21 million tonne per day, up 7.6% from January's 2.05 million tonne per day the fervor is missing in the coking coal market. Post Lunar Holiday debacle in steel price by 3% has numbed excitement prematurely.

Despite the touted aspirations of enhanced infrastructure activity by new regime a series of sobering decisions has taken the nip off. Surmounting inventory touching height of nearly 22 million tonnes of finished steel has nailed any chances of immediate turnaround. Hiking of capital gains tax to 20% in reality sector has dampened blistering buying from a sector solely accounting for 51% steel consumption.

If finished market sneezes raw material will certainly catch cold. Coking coal a key ingredient in steel production is majorly imported by China and so by Japan and India. However Japan still commands the reverence by setting the quarterly benchmark with Australian suppliers. Last quarter (Q4) benchmark was settled at USD 165 per tonne between BMA and Nippon Steel. Riding the crest of resurgent buying in China Q1 was expected to better it. However the present imbroglio over quarterly settlement and uncanny resistance by Japanese buyers has only perpetuated ambiguity. Exigency has led to monthly settlement at USD 173 per tonne for prime coking coal with spot prices falling to USD 161 per tonne, FOB Australia. IN fact US miners have been offering at USD 150-155 per tonne of a shade lower quality in the spot market.

April monthly price is a roll over from March. Efficiency rather of operation coupled with some strategic hedging is desired by miners both in Australia and USA to resist pressure from buyers. A recent indication by SAIL to double monthly coal purchase from US to 4 million tonne per annum has certainly put the onus on Australian miners to focus on improving operational efficiency and profitability through cost containment initiatives and improve competitiveness.

Some major miners are resorting to volume segregation for Japanese market pending quarterly settlement thereby spreading the risk in negotiation vis-vis US miners.

As the weather warms up steel demand is expected to pick up thereby kindling coking coal buying. However given the nuances of global economy oscillating between revival and despair in quick succession stability will certainly elude in short run with focus shifting towards spot rather than quarterly pricing.