- Mongolia over-delivers on full-year export target, to raise volumes in 2027
- Downstream capacity to absorb high-priced coking coal weakening sequentially
In early September, the coking coal futures market went through the late-August short squeeze, driven by a triple resonance of geopolitics, PMI recovery, and tightening safety supervision, with the front-month contract briefly breaking above RMB 1,740/t ($259/t) and then pulling back from highs. We lean toward characterising this as profit-taking, compounded by concerns that high coal prices will trigger negative feedback through the industrial chain, rather than a fundamental shift.
Among the news that landed over the same period, the fourth round of coke price hikes is a clear directional bullish signal. Steel mills in Tangshan, Xingtai, Tianjin and Shijiazhuang have already accepted an increase of RMB 100/t for wet-quenched coke and RMB 110/t for dry-quenched coke, effective 3 September. This shows coking margins are still recovering and coking plants’ demand for coking coal remains supported. But spot-side buying appetite is beginning to loosen under high coal prices.
Mongolian supply situation
Mongolian coal supply remains the core contradiction in the futures market, and recent marginal change is worth unpacking.
Cross-border clearance volumes have dropped since mid-August, falling from an average of 170,000 to 180,000 t/day in early August all the way to 70,000 to 80,000 t/ day by late August. This is not a single-day anomaly; it has held at low levels for two consecutive weeks and represents a real supply contraction.
As for the cause, it can be attributed to negotiation-driven contraction ahead of the China-Mongolia meeting. Inner Mongolia is scheduled to attend a meeting in Mongolia on 8 September, and before that meeting, port clearance efficiency and vehicle flows will be hard to restore to prior highs. This is a one-off, reversible near-term impulse, as Mongolia has already over-delivered on its full-year export target and will continue to ramp up volumes into 2027.
But the near-term impact is real: customs inventory has drawn down from more than 3.5 mnt in early August to just over 2.3 mnt, with a single-week drawdown of more than 0.7 mnt marking the fastest pace in nearly two months. Cumulative drawdown over three weeks exceeded 1.2 mnt, and the pace is still accelerating week by week. Clearance has halved, yet offtake has not stopped. Downstream offtakes of 1.3 mnt per week are pressing against a thinning buffer. At this pace, port inventory will be drawn down to near-depletion within roughly three weeks. This is the most bullish signal on the Mongolian coal side.
Domestic supply loosening
For domestic supply, the marginal development truly worth noting is the further expansion of resumption approvals. The resumption progress in Qinyuan, Changzhi, has advanced to seven mines totalling more than 9 mnt. One newly added 1.2 mnt low-sulfur primary coking coal mine is set to produce coal and another 1.2 mnt low-sulfur lean coking coal mine will follow, adding two mines within two days.
Directionally, this is a clear supply loosening signal, but output data has not kept pace. Mysteel’s daily clean coal output is still hovering around 0.63 mnt, with a w-o-w change of less than half a percentage point, far from the threshold for a resumption breakout. The Fenwei measure is even edging slightly lower.
The pattern of an increase in administrative approvals leading to physical output release has not materialised; instead, it has become more glaring as the number of approved mines grows. This means the key thing to watch in the next one to two weeks is whether output data posts a clear rebound. Once Mysteel shows a single-week jump of more than 4% that would be the signal that supply gap convergence is materialising. Until that happens, the underlying tone of domestic supply is still around roughly a 20% deficit.
Restocking as emergency buying
End-demand is the fundamental constraint capping further upside. The coke price hike landing is directionally bullish, but on the same day, steel mills’ profitability has already halved to just above 30%, a near one-year low, and comprehensive margins are still negative. Downstream capacity to absorb high-priced coking coal is weakening sequentially. Hot metal output is edging lower from 2.366 mnt/day but not yet collapsing.
Downstream combined inventory posted its first slight replenishment after nine consecutive weeks of drawdown, yet available days remain pinned near historical lows. This kind of restocking looks more like forced emergency buying than proactive accumulation. This bullish-bearish offset is exactly why the market struggles to sustain a volume-driven push higher despite an apparent supply gap. Weak downstream absorption will form a hard ceiling on coking coal upside.
Taking the expectations of supply and imports together with price spread signals yields the most critical conclusion — supply tightness is already fully priced, and loosening is not yet priced. The Shanxi-Mongolia price spread is firmly near the historical extreme around RMB 750/t, meaning the scarcity premium of Shanxi primary coking coal has not transmitted to Mongolian No. 5 coal. The clean coal versus raw coal spread has instead been compressed to an extremely thin level around RMB 50/t.
The port basis has turned positive to more than RMB 60, meaning raw coal spot is already above the futures and there is no downside pressure from delivery. These three spot squeeze signals are all simultaneously maxed out, indicating that the marginal physical tightness at the near end has been fully, even excessively, priced.
On the flip side, the loosening signals, namely the Changzhi capacity expansion survey, the China-Mongolia cross-border railway, three mine resumption approvals, and high Mongolian export targets, all point to a medium-term upward shift in the median supply, yet there is no evidence of price-in at the spread level. The Shanxi-Mongolia spread even widened on 1 September because of Linfen holding prices firm.
Capacity expansion and resumption have not yet materialised; the front end is still genuinely tight due to safety-driven output cuts and the sharp drop in Mongolian coal clearance, and the absolute level of the ex-calorific value premium is not low. The value of this early signal is that it points in the same direction as resumption approvals, the capacity expansion survey, and high Mongolian export growth. In other words, the market is cautiously testing these expectations, but they have not yet been formally priced.
Overall, coking coal is now in a tug-of-war between a near-term tight but already fully priced setup and a medium-term loose supply that is not yet priced in. Further upward momentum can only come from incremental bullish news, namely faster destocking or another supply tightening before spreads normalise.
Note: The article is published as part of a content sharing agreement between Horizon Insights and BigMint
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