- Regulatory crackdown triggers coal price hikes
- Firm hot metal production keeps iron ore supported
By Madhumita Mookerji
China’s steel industry is bracing for some intensified cost pressures as a combination of depleting inventories and stricter government audits have hit the availability of critical raw materials like coking coal and iron ore. The developments come at a time when daily molten iron — or hot metal –production remains strong, keeping the case for higher raw material usage strong.
Why are prices surging, inventories shrinking?
Macro factors spur prices: As per a recent Horizon Insights and MySteel webinar information, macro expectations have catalysed price increments.
Coal audits trigger price increase: The regulatory push has coincided with a sharp rebound in coking coal prices, particularly from Australian and Mongolian suppliers. Total inventories at steel mills and coking plants are trending downward, tightening supply further and pushing prices upward.
China’s total coking coal inventories have fallen from 350 mnt levels earlier in the year to less than 300 mnt last month. On the other hand, BigMint data shows, prices of the low vol PCI, CNF Jingtang, has risen from $103/t levels in July 2025 to $113/t in August on average.
The spurt in coal prices can be attributed to The National Energy Administration’s (NEA’s) recent launch of an aggressive audit targeting coal mines across eight major producing provinces, including Shanxi, Inner Mongolia, and Xinjiang. The probe, which checks for overproduction beyond declared capacity, has already begun to reshape market behaviour, with tighter corporate-level crackdown expected in the coming quarters.
Despite the lack of significant overproduction at the provincial level, analysts feel the audits could expose discrepancies at the corporate group level too, especially where production from over-performers may have offset under-performers.
“While macro indicators show relative stability, enforcement at the enterprise level is a game-changer,” said one industry analyst, adding. “This is where supply discipline will really start to bite.”
Firm hot metal production props up iron ore prices: Similarly, BigMint data shows the Fe62% fines imported from Australia to Rizhao Port have been steadily rising m-o-m, from $95/t in June this year to $99/t in July and have exceeded $100/t on average so far in August. On the other hand, mills’ ore inventory levels have fallen from a high of around 110 million tonnes around February 2025 to as low as about 90 mnt levels in June-July.
Hot metal output — a key barometer of steel demand — remains strong, consistently surpassing 2.4 million tonnes per day. This has helped sustain iron ore demand, even as port inventories are forecast to deplete by late August, raising concerns of short-term shortages.
No voluntary production cuts from mills: Meanwhile, steelmakers continue to churn out production, despite weakening profit margins. “There’s no sign of voluntary production cuts,” said a senior trader. “Mills are absorbing the margin squeeze, betting on price recovery and policy clarity.”
Iron ore offtake firm: Iron ore consumption, as per sources, is moving in tandem with production trends. Data shows the iron ore offtake-to-hot metal ratio is holding steady, while overall inventories at 45 monitored ports are falling sharply.
Outlook
Shipping estimates point to reduced arrivals through August, exacerbating concerns over short-term availability. Analysts warn this could place additional upward pressure on prices, especially if steel demand remains resilient through the rest of Q3.
With downstream demand holding and regulatory constraints unlikely to ease, industry watchers say the rest of 2025 could see increased price volatility for raw materials. Strategic sourcing and inventory management will be crucial for mills trying to navigate the policy-driven supply landscape.
As the coal audit results roll in, market participants will be watching closely for signs of further tightening—or potential relaxations—in China’s raw material oversight, which could shape pricing dynamics well into 2026.
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