China’s metallurgical coke prices remained under downside risks, with the primary pressure coming from record low steel profits and demand, which has eroded mills’ production enthusiasm and buying appetite for coke.
Coke supply is currently in a surplus in the market, mainly due to the buy-side reason rather than the supply side. Construction steel transactions in major trading houses in China from April to now hit the lowest for the same period in more than five years, historical data showed.
However, on the supply side, coke inventories at coking plants, steel mills and eastern ports combined stayed at low levels, indicating there was no obvious surplus in output.
Construction steel mainly refers to rebar and wire, which combined represent 67.3% of the total steel product stocks in China’s 21 key cities by the end of mid-June, according to data from the China Iron and Steel Association.
Slow transactions for construction steel have piled up inventories at mills in the country’s leading steel-making provinces of Hebei, Jiangsu and Shandong, which in turn dented steel prices, Sxcoal learned.
Data showed, Shanghai HRB 400 rebar declined 540 yuan/t from a month ago to 4,260 yuan/t on June 23, which was also 12.9% lower compared with the preceding year.
As a result, rebar losses have expanded to around 500 yuan/t in June, forcing mills to slash coke prices to alleviate poor margins.
The weak real estate construction was to blame for the tepid steel consumption, instead of the epidemic.
During April, the apparent steel demand in the epidemic-hit northern, southern and eastern China declined by 20-30%, while that in little-affected Guangdong, Guangxi and Hainan areas also declined by around 30%, which partly suggests that the epidemic was not the main cause of the decline.
Construction steel demand was also hit by the epidemic-induced transportation barrier, but the demand remained weak after the resumption of transportation.
Some analysts excepted more than 80% of the decline was caused by real estate and less than 20% by epidemic reasons.
The weakness in construction steel demand is less likely to ease immediately, given that real estate construction is restrained by the hot temperature in the north and heavy rainfalls in the south of the country.
Besides, China pledged to cut crude steel production in 2022. During the first five months, China churned out 435.02 million tonnes of crude steel, which means the country has to limit its production to 594.98 million tonnes for the remainder of the year, with daily output limit calculated at around 2.78 million tonnes, lower than the current daily production.
According to the forecast of CISA, China was estimated to produce a total of 31.03 million tonnes of crude steel during the same period, with daily output at 3.10 million tonnes during June 11-20.
Steel mills are expected to cut production in the second half in order to meet the production reduction target.
Therefore, demand for coke is less likely to rebound notably in a short time, and coke prices would remain under downside pressure.
Major steel makers had cut coke prices by 300 yuan/t for the first round at the start of the week, and some steelmakers continued to cut coke prices by 200 yuan/t for the second round. Two leading steelmakers in Hebei and Shandong have yet to request for the cut as of the writing.
Note: This article has been exchanged under the article exchange agreement between CoalMint and Sxcoal.
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