Supply issues have been tightening the Chinese coking coal market for months, pushing the price of the key steelmaking raw material up a record 46% in August alone — the biggest surge on record.

Coking coal futures on China's Dalian exchange rose 6% on Monday afternoon local time amid persistent supply problems following the mining disaster in May and increased safety checks at other Chinese mines. Such safety inspections, a standard response after fatal accidents, routinely curtail output in Shanxi and other key coal-producing provinces, and the duration of the current crackdown remains a central variable for how much supply returns to the market in the months ahead.

More significantly, the futures were on track to post a record-setting 46% monthly gain, the largest since Dalian coking coal futures began trading in 2013, according to data compiled by Bloomberg. The August rally eclipses the previous record monthly jump of 38%, set in July 2025 — meaning the two largest monthly surges in the contract's history have come in back-to-back years, underscoring how persistently fragile seaborne and domestic met coal supply has become.

The surge in coking coal prices has spilled beyond China. Steelmakers in India — the world's second-largest steel producer after China — have seen margins squeezed by rallying input costs. India relies on imports for as much as 95% of its coking coal, or metallurgical coal, demand, leaving it particularly exposed to price moves in the seaborne market, where Australia is the dominant supplier of premium material.

Metallurgical coal is a grade of coal that is one of the essential raw materials in the steelmaking process. Also known as met coal, it contains more carbon, less ash, and less moisture than thermal coal, which is used for electricity generation. Because it is consumed in blast-furnace-based steelmaking, demand for met coal is closely tied to steel output in China and India, the world's two largest steel producers.

The price of premium coking coal free on board (FOB) in Australia surged 25% in the first seven months of this year compared with the same period last year, driven by a series of supply disruptions. These include the slower ramp-up of new mines, higher prices linked to the Iran war, supply disruptions in key producer Australia, and the deadly coal mine explosion in China's Shanxi province that killed more than 80 people in the worst Chinese mining accident in years.

"Steelmaking coal prices strengthened from CY2025 levels as strong Indian import demand and supply disruptions tightened an otherwise balanced seaborne market," mining giant BHP said in its Economic and Commodity Outlook earlier this month.

By Michael Kern for Oilprice.com