After a year of sky-high prices for coking coal – the type used to make steel – slowing global growth is removing “some of the froth” in 2019, according to Wood Mackenzie.

Steel prices and margins have been falling since November, and there are sufficient economic headwinds to suggest margins will stay lower this year.

But regardless of this global (non) growth story,  the main theme in 2019 will be how steelmaking giant China chooses to intervene in its domestic market, which could actually benefit international coking coal prices.

>> Scroll down for the performance of ASX coking coal stocks over the past six months

And although the price of coking coal exported from Australia has come off its March 2018 peak of $US202.35 ($281.22) per tonne, prices in Australia have been “quite resilient for the past few months”, according to S&P Global Platts.

The long-term outlook also looks good, with  AME projecting global demand for steelmaking coal to rise from 321Mt in 2017 to 457Mt in 2030.

This is positive news for ASX-listed small cap coking coal miners and explorers, which mostly enjoyed strong share price gains over the last year.

Growth is slowing but China will respond

Steel demand slowed sharply in the last quarter of 2018 due to a fall in investment and lower demand for cars.

But the Chinese government has responded with a round of economic stimulus measures around infrastructure, and Wood Mackenzie expects steel demand to grow 3 per cent once the measures take effect.

This includes significant infrastructure investment by the Chinese, such as a 45 per cent boost to railway construction in 2019 compared to last year.

China is closing local mines

In 2018 China implemented a reform program to eliminate excess coking coal capacity, reduce emissions, and improve safety.

“We expect the focus on capacity removal to harden in 2019 and think structural changes in the coke sector will become more visible,” Wood Mackenzie says.

In early 2019, the National Coal Mine Safety Administration temporarily closed 39 coal mines susceptible to coal bursts, gas explosions and fires.

“We estimate that more than 80 million tonnes of coking coal capacity will be affected, accounting for 7.5 per cent of the China total, and mainly gas, fat, and 1/3 coking coal,” Wood Mackenzie says.

“A 20 per cent production cut for the full year across all mines could lead to a 12 million tonne to 15 million tonne cut in supply which would have to be replaced from elsewhere.”

And India needs more coal

Indian coal imports rose 11 per cent last year on the back of strong steel demand a protective policy environment for domestic steel makers.

The Indian market will continue to grow in 2019, but a “cyclically weaker global steel market” could limit Indian steel demand growth to just over 5 per cent this year.

Producers are spending big on new mines and expansions

Coal producers will look to add 20 million tonnes in 2019, mainly from mine expansions.

Less than 500,000 tonnes is expected from new mines – but the “shackles are loosening on development capex”, according to Wood Mackenzie.

“With no more tier-one operating mines for sale we could see a stronger push towards further brownfield expansion and greenfield project development,” Wood Mackenzie says.

How have small cap coking coal stocks performed?

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Ticker Name Share Price [Jan 23] Market Cap 1 Year Performance % 6 Month Perfomance % 1 Month Performance %
PDZ PRAIRIE MINING 0.345 $73.2 MILLION -38.39 -21.59 -13.75
SMR STANMORE COAL 0.925 $233.9 MILLION 46.83 10.12 -7.5
AKM ASPIRE MINING 0.019 $62.2 MILLION 52 -38.71 -5
BRL BATHURST RESOURCES 0.12 $190.1 MILLION -31.43 -17.24 -4
TIG TIGERS REALM COAL 0.039 $69.9 MILLION -25 -2.5 -2.5
BCB BOWEN COKING COAL 0.02 $10.1 MILLION 17.65 17.65 0
JAL JAMESON RESOURCES 0.17 $44.8 MILLION 13.33 24.44 0
WLC WOLLONGONG COAL 0.008 $74.94 MILLION -42.86 0 0
TER TERRACOM 0.615 $246.1 MILLION 186.05 25.51 2.5
PAK PACIFIC AMERICAN COAL 0.044 $7.3 MILLION 41.94 -18.52 4.76
B2Y BOUNTY MINING 0.13 $41.7 MILLION -65.79 -64.38 13.04
AHQ ALLEGIANCE COAL 0.057 $29.1 MILLION 11.77 -1.72 16.33
NAE NEW AGE EXPLORATION 0.006 $4.3 MILLION -33.33 -25 20
ATU ATRUM COAL 0.105 $39.7 MILLION -32.5 32.91 22.09
CKA COKAL 0.054 $39.8 MILLION 12.5 45.95 54.29
LNY LANEWAY RESOURCES 0.005 $18.4 MILLION 25 66.67 66.67
MCM MC MINING 1.22 $167.6 MILLION 92.13 306.67 74.29