Raw Material Scenario
During FY 2022-23, the prices of our key raw materials experienced significant volatility, primarily within the coking coal market. This was mainly due to frequent weather disruptions occurring in eastern Australia, as well as notable shifts in trade flows following the Russian-Ukraine war.
In FY2022-23, coking coal prices exhibited significant fluctuations because of frequent weather disruptions and the Russian-Ukraine war. PHCC FOB Australian coal prices fluctuated between US$188/t and US$670/t in 2022, in contrast to the range of US$102/t to US$408/t observed in 2021. The average price for coking coal throughout the fiscal year reached $364/t, displaying an increase from the previous year’s average of US$313/t.
In the first half of the year, FOB Australian coal prices soared to unprecedented levels due to concerns regarding a potential ban on Russian coal exports.
Consequently, panic buying ensued in Europe. Although prices moderated in the later part of the year, they remained historically elevated as Australian miners encountered challenges meeting their production targets due to the impact of La Nina weather conditions experienced the previous year.
In FY 2022-23, iron ore prices underwent a correction from their previous record highs in FY 2021-22, primarily due to a decline in Chinese steel demand and prices. In 2022, the prices for 62% Fe CFR China ranged between US$80/t and US$163/t, compared to US$87/t and US$233/t in 2021. The average iron ore prices for the year were around US$120/t, a 25% decrease from the average of approximately US$160/t in 2021. The peak iron ore price was observed in March 2022, followed by a sharp downtrend driven by declining steel prices and margins. Throughout 2022, key property metrics in China, including new home sales and new home starts, exhibited a year-on-year average decline of 25% to 40%. Chinese steel mills reported predominantly negative steel margins in the second half of the year, further impacting iron ore prices.
In 2023, coking coal prices have been relatively more stable, with a narrower trading range. However, the market still experiences volatility influenced by weather developments, particularly in Eastern Australia. In March, the Bureau of Meteorology officially declared an end to the La Nina weather conditions, reducing the risk of supply disruptions for the remainder of the year. The anticipated resurgence of China as a spot buyer of Australian coking coal may contribute to a more balanced market.
In 2023, iron ore prices largely maintained a rangebound movement during the January-March quarter. Some market participants attributed this stability to uncertainties surrounding the recovery of downstream steel demand in China. The Chinese Government has also been engaged in discussions regarding a potential 2.5% reduction in crude steel production for the year, which would further affect the demand for seaborne iron ore. Moreover, Australia’s iron ore shipments have been positively influenced by drier-than-usual weather conditions in the January-March 2023 quarter, leading to an estimated year-on-year increase of 6% in export volumes.