Iron ore and metallurgical coal, the two main ingredients in steelmaking, have for the past six months broadly moved in lockstep. But recently their fortunes have started to diverge.

Iron ore has rallied 30 per cent since the beginning of April on the back of weather-related supply disruptions and restocking by Chinese steel mills. But met (or coking) coal has dropped to $90 a tonne, a near 10 per cent slide over the same period. What is more, the latest quarterly met coal supply agreements have just been concluded at the lowest level in more than a decade.

Australian met coal producers have agreed a premium for coking contracts with Japanese customers of just $3 a tonne above the spot price in the third quarter, according to McCloskey, the coal data provider. That is 15 per cent lower than last quarter and represents the lowest premium in almost two years.

A supply glut has seen met coal prices plunge more than 70 per cent from a record high of more than $300 a tonne four years ago. The hope among traders and analysts is the latest quarterly contracts will provide the impetus for further supply cuts and rationalisation within the industry.

Over the past month, Teck Resources, Solid Energy, Glencore and Peabody have all announced plans to curtail production. This, as Macquarie Bank notes, comes on top of 25m tonnes of cuts in 2014.

But more needs to be done to bring this stubbornly oversupplied market back into balance, say industry executives and analysts, given there is not much chance of a demand-led recovery because of the economic slowdown in China.

“We had talked about 30m tonnes of shutdowns . . . and we thought that an additional 10m to 15m tonnes would be needed to bring the market back to balance,” said Don Lindsay, chief executive of Teck, the world’s second biggest met coal exporter, at an industry conference in May.

“Since that time, we’ve seen an additional 6m tonnes of announcements for shutdown, but we think that even more is needed to get the market back to balance. So this next couple of quarters will be quite interesting, but suffice it to say a lot of people are losing money in this business.”

By contrast, the iron ore industry has been much quicker to respond to lower prices. Rio Tinto, the world’s second-biggest exporter, says global supply was reduced by 125m tonnes last year from mine closures and production cuts. Of that total, around 70 per cent was from China and the balance from non-traditional suppliers such as Indonesia and Iran. In 2015, the miner expects supply to fall another 85m tonnes.

The difference between iron ore and met coal can largely be explained by a couple of factors. Several US met coal producers have been able to file for Chapter 11 bankruptcy protection. This has allowed them to keep producing and pushing coal into Asian markets while their finances are restructured.

At the same time, there has been strong growth in Chinese supply, something traders expect to continue because of Beijing’s decision to protect its domestic coal industry.

“China has now returned to being a net exporter of coking coal and its derivatives (coke and crude steel) . . . it appears that only if the government takes a hold of domestic supply that this can be turned around,” said Macquarie in a note on Friday.

Still, if more production cuts do materialise in the coming months it could help establish a floor for the met coal price.

As for iron ore, with a wave of new supply due later this year from Rio and BHP Billiton, another round of production cuts will be needed if prices are to remain around their current level of $60 a tonne.

That, however, could be difficult because the weaker players have already retreated from the market and the remaining producers are either low cost or backed by the state in China.