China’s domestic metallurgical (met) coke prices have continued their relentless rise throughout this month, on the back of rising demand amidst acute supply tightness, primarily owing to limited availability of coking coal.
On 23 Aug’21, the price of met coke in China’s major steel-producing city of Tangshan witnessed another round of increase — this being the fifth since the beginning of this month. The price of secondary met coke reached CNY 3,200/tonne (t), an increase of CNY 600/t from the end of July. Meanwhile, Shanxi and other mainstream regions started witnessing the sixth round of price uptick for met coke.
Reduced availability of imported coking coal lead to rising raw material cost for met coke production
Traditionally, China’s coking coal imports have mainly originated from Australia and Mongolia — China’s imports of coking coal from the two countries accounted for 86.7% of total imports in 2019. However, since mid-October 2020, China’s imports of Australian coking coal reduced drastically due to restricted customs clearance of Australian coal at Chinese ports.
Over the past few months, Mongolia has become the primary source of coking coal for China. Simultaneously, China’s coking coal imports from Russia and Canada have increased significantly.
- China imported 8.346 mn t of Mongolian coking coal in the first half of this year (H1 CY21), a y-o-y increase of 14.3%, accounting for 37.3% of China’s total coking coal imports during H1 CY21.
- Besides, China imported 4.406 mn t of coking coal from Russia, a y-o-y increase of 51.9%; accounting for 19.7% of China’s total coking coal imports during H1 CY21.
- China also imported 4.028 mn t from Canada, a y-o-y increase of 52.9%; accounting for 18.0% of China’s total coking coal imports during H1 CY21.
But, although China has increased its coking coal imports from Mongolia, Russia, Canada et al., it has not been able to make up for the supply gap caused by the suspension of Australian coal imports.
Notably, China imported 22.362 mn t of coking coal in H1 CY21 (Jan’21-Jun’21), a decrease of 15.813 mn t as against corresponding period last year (CPLY), and a y-o-y decrease of 41.1%, according to customs’ statistics.
At present China’s coking coal imports from Mongolia have been hugely affected due to resurgence of the Covid-19 pandemic since August. Stringent import restrictions and potential supply disruptions have caused the Chinese coking coal market to rise sharply.
As of 23 Aug’21, the price of Tangshan coking coal is CNY 2,320/t, an increase of CNY 360/t or 18.4% from the end of July.
Met coke supply and demand are tight, prices have risen significantly
China’s met coke production fell for two consecutive months in June and July, due to the decrease in imports of coking coal and increased environmental protection restrictions. According to data from the National Bureau of Statistics, China’s met coke output was 38.91 mn t in Jun’21, down 3.2% y-o-y; while in Jul’21, it was 38.79 mn t, down 2.9% y-o-y.
Alongside, however, China’s met coke export volume has increased substantially as a result of an increase in met coke demand following the post pandemic recovery of overseas economy.
China exported 4.1 mn t of met coke in H1 CY21 (Jan’21-Jun’21), an increase of 1.95 mn t or 90.7% compared with CPLY.
High production costs in steel mills
As an important raw material for steelmaking, the price increase of met coke inevitably pushes up the production cost of steel enterprises.
As of 23 Aug’21, iron ore price index was USD 136.5/t, a decrease of USD 44/t or 24.4% from the end of July; while the price of met coke was CNY 3,200/t, an increase of CNY 600/t from the end of last month.
Over the same period, the ratio of met coke costs to the total cost of pig iron increased by 9.4 percentage points to 42.5%. It can be seen that the rise in met coke prices has seriously overdrawn the cost reduction space brought about by the fall in iron ore prices.
It is hence analyzed that it is difficult to effectively improve the import of coking coal in the short term, and the price of met coke is still likely to rise further, which will lead to an increase in steel production costs and shrinkage of profit margins.
Eventually, with the accelerated implementation of steel production reduction, the tight relationship between met coke supply and demand is expected to alleviate, driving the rational curtailment of steel production costs.
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