Chinese domestic metallurgical (met) coke prices have dropped by almost 28% in Nov’21 so far.
Coke demand from mills has also reduced after production cuts were imposed in the country’s largest steel producing province, Hebei. In fact, a few coke producers in North China’s another key steel producing province, Shanxi, have also curtailed production following stringent governmental restrictions, as per Lange Steel.
Overall, met coke producers have cut output by 30-50%.
While China has imposed curbs on steel production throughout 2021, restrictions are now being rolled out more frequently and have been extended into the upcoming quarter in an effort to ensure clear skies for the Winter Olympics.
That apart, China’s major steel consumer, the housing sector, is under pressure from government rules aimed at curbing financial leverage as well as a market slowdown.
Met coke prices in North China, with 12.5% ash content, are now struggling at RMB 3,110/tonne (t) ($494.9/t), down by RMB 1,000/t ($156/t) since the start of this month.
Notably, coke and coking coal contracts on the Dalian Commodity Exchange had touched their lowest in about four months on 17 Nov’21 at RMB 2,650/t ($415.2/t) and RMB 1,842.5/t ($288.7/t) respectively.
Current port-side coke prices at Rizhao Port are at RMB 3,300/t ($516.54/t), down RMB 592/t($92.66/t), or 18% w-o-w.
Weak coke supply and demand
At present, the capacity utilisation rate of coke ovens is already at a low level. Recent data shows that the utilisation rate of independent coking enterprises was 71.81%, and the average daily output was 609,600 tonnes (t), both of which were the lowest in recent years.
On one hand, cokemakers are incurring losses amid production cuts. On the other hand, strict environmental inspections in winter have restricted coking capacities.
Upstream coke output has continued dropping, while demand from steel mills has continued to decline.
On the whole, although the supply-demand fundamentals of the coke market are weak, supply still exceeds demand. With rising coke inventory and dropping sales, coke prices would continue to move downward.
Coke makers’ losses continue, further price cuts expected
Since the first two rounds of met coke price cuts, coke manufacturers have been incurring losses. Further, met coke prices have undergone four more rounds of reductions, deepening their losses.
At present, some coke makers with relatively high costs have reported losses of RMB 600-700/t ($94-110/t). For the mid-small-scale manufacturers, the losses are relatively lesser, in the range of RMB 200-300/t ($31-47/t).
There are two main factors that have caused the current situation. Firstly, high-priced long-term contracts signed by some coking companies in the initial stage are still being implemented.
Secondly, blast-furnace coking coal is high-priced, and so costs cannot be effectively reduced.
Overall, Chinese met coke market outlook is presently bearish, which would further push down prices and put additional pressure on producers’ margins.
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