Will Coal Haunt US Steel Producers Next Year?




Steel companies like ArcelorMittal (MT), U.S. Steel Corporation (X), and AK Steel (AKS) use coking coal as an input for their blast furnaces. Remember that annual coal contracts are the norm for US steel companies. Steel mills saw their 2017 input costs rise as this year’s coal contracts settled at higher levels than last year. However, it’s worth noting that despite the spike in coking coal prices last year, this year’s contract pricing was settled at only marginally higher prices.

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Last year, supply disruptions arising from Chinese curtailments and weather-related disruptions in Australia, led to a brief spike in coking coal prices (TECK). However, prices soon fell to more normalized levels after supply concerns eased. Looking at 2017, we see that seaborne coking coal has been consolidating near the $200 per metric ton level. Unlike last year, when prices rose too fast and too soon, this year’s price rise has been more gradual and fundamental, backed by rising global steel production. Steel companies producing steel in blast furnaces could see their coking coal costs rise next year if 2018 coal contracts settle at higher prices.

Graphite electrodes

Graphite electrode prices have also risen sharply this year due to capacity curtailments in China. Along with higher spot pricing, cathode availability has affected some steel mills. Higher electrode prices are expected to increase steel companies’ production costs that produce steel in electric arc furnaces. Nucor (NUE) and Steel Dynamics produce their steel in electric arc furnaces while they account for ~20% of ArcelorMittal’s steel production.

In our view, higher input costs could be a bullish driver for US steel prices in the near term. Steel companies also expect some respite from the Trump administration in curbing steel imports. See US Steel Industry’s Outlook: Steel Producers’ Views to see what different steel companies have to say on the Section 232 imports probe ordered by the Trump administration.


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