Monday, July 30, 2018

Prices of COKE expected to weaken further

China’s domestic coking coal market weakened in July amid production restrictions in the country’s steelmaking hub of Tangshan and four rounds of coke price cuts by a major mill.
Metal Bulletin’s weekly assessment of prices for domestic hard coking coal in Shanxi delivered to Tangshan stood at 1,360-1,700 yuan ($200-250) per tonne on Friday July 27, compared with 1,390-1,750 yuan per tonne on June 29.

The assessment is down 30-50 yuan per tonne due to lower coke prices and weaker demand following restrictions imposed by local authorities in Tangshan from July 10 until August 31 to cut emissions, market sources said.

Cheaper coke
“Coke prices have been falling since the first working day of July and the downward momentum rubbed off on coking coal prices,” a Tangshan-based coke plant source said.

East China’s Rizhao Iron & Steel, a major coke buyer, lowered its purchase price for the steelmaking raw material four times in July. Following the reductions totaling 350 yuan per tonne, the mill is now paying 2,000 yuan per tonne for materials with 57% coke strength after reaction delivered to its facility.

Coke prices have stabilized since Rizhao Steel’s last reduction on July 19, and a segment of the market even expects them to rebound, but the bullish sentiment does not appear to be offering any support to the coking coal market.

“Though coke prices have stopped falling, the large amounts of coking coal stockpiled at various mines in Shanxi are forcing miners to slash prices for quicker sales,” a domestic trader based in Beijing said.

High inventories
Coke output remains limited in China, partially due to low profit margins forcing producers to lower their coking activity on their own accord. But the main factor limiting coke production in the country is the government’s continual efforts to reduce pollution.

A Tangshan coke producer is putting priority on drawing down its coking coal inventories instead of procuring more raw materials due to limited space in its stockyard, a source said. This is the case for other coke producers in the region as well, he said.

Subdued demand
Despite a recovery in domestic steel prices, market participants are still not seeing any support for the coking coal market.

“It is not just about high steel margins. Market fundamentals determine that if [the] supply [of coking coal] were to exceed demand, then prices come under pressure,” the Beijing-based trader said.

A mill source in Hebei province concurred. The mill’s coking rate has been cut to 2.5 million tonnes per year from 5 million tpy, he pointed out, and as a result, it has stopped procuring coking coal in the spot market.

“Our new project that was slated to begin operations in August has also been postponed indefinitely because of the Tangshan production cuts,” he added.

As such, sentiment in the domestic coking coal market remains bearish, and market participants are expecting prices for the steelmaking raw material to weaken further.