LAUNCESTON — There is an increasing disconnect between the two key ingredients for making steel, with iron ore safely within China’s economic bubble and coking coal more exposed to the rest of the coronavirus-riddled world.

The main difference is that while China imports the bulk of the iron ore with which it feeds its 1 billion-tonne-a-year steel industry, it has a large domestic coking coal industry and imports only about 10% of its needs.

Benchmark spot 62% iron ore for delivery to China , as assessed by commodity price reporting agency Argus, ended last week at $88.30 a tonne.

While this was down 8% from its peak so far this year at $96 a tonne on Jan. 17, iron ore’s decline looks modest compared to the massive losses for other commodities, with both crude oil and liquefied natural gas at one point down more than 70% from their early 2020 peaks.

Iron ore is also outperforming coking coal futures on the Singapore Exchange, where valuations for the Australian free-on-board price, ending at $115 a tonne on May 8.

This was up from the low so far this year of $107.97 a tonne on May 1, but also down 29% from the year’s peak at $161.95 on Feb. 3.

Normally, iron ore and coking coal prices track each other fairly closely, but the weaker performance of coking coal shows the different dynamics of their underlying markets.

China accounts for about 70% of the global trade in seaborne iron ore, and the recovery in output from steel mills since the lifting of coronavirus restrictions has buoyed the market for the steelmaking ingredient.

China’s steel mills actually managed to boost production in the first quarter, churning out 234.5 million tonnes, up 1.2% from the same period in 2019.

Data on April’s steel production is still to be released, but rising utilization at mills and improving profit margins suggest output will be higher, boosting demand for iron ore.

China’s imports of iron ore reached a four-month high of 95.71 million tonnes in April, up 11.4% from March and taking the January-April increase to 5.3%.

It’s worth noting that iron ore supply from Brazil, the world’s number two shipper behind Australia, has been affected by outages at mines and weather disruptions, while exports from China’s number three supplier, South Africa, have been lower because of that country’s ongoing coronavirus lockdown.

This has kept prices well bid as traders looked to source more cargoes from Australia, where the country’s mines have continued operating throughout the pandemic crisis.

COKING COAL WOES

In contrast to iron ore, China’s role in global seaborne coking coal is far more limited.

It imported about 75 million tonnes of coking coal in 2019, according to the Australian government’s Resources and Energy Quarterly for the January-March quarter.

About 31 million tonnes of that total, however, came overland from Mongolia, meaning China bought only about 44 million seaborne tonnes, or about 13% of the global total.

Other major importers of coking coal include Japan, South Korea, India and Europe, and the declines in steel output in these countries and regions because of lockdowns to combat the coronavirus are weighing heavily on prices.

India, for example, imports the bulk of its coking coal, with most of it coming from top exporter Australia.

India imported an average of 3.73 million tonnes a month from Australia in the first quarter, according to vessel-tracking and port data compiled by Refinitiv.

This dropped to 2.84 million tonnes in April as India enforced a lockdown that is still continuing, and its May imports are on track to drop even further.

Just 1.47 million tonnes of Australian coal either has arrived in India this month or is en route and likely to arrive prior to month-end, according to Refinitiv data.

This figure is likely to be revised higher as more cargoes are sighted, but with a sailing time from Australia’s east coast coal ports to India of around three weeks, the chances are that the volumes won’t rise too much.

To make matters worse for seaborne coking coal, the flow of the fuel from Mongolia has resumed after China’s landlocked neighbor idled much of its mining industry in the first quarter to combat spread of the coronavirus.

While China is able to prop up the seaborne iron ore market by itself, it cannot do the same for coking coal, and the ongoing weakness in steel output outside China means coking coal prices are likely to weaken further. (Editing by Tom Hogue)