Chinese prices of metallurgical coke will strengthen further for the duration of this month, Mysteel predicts in its monthly outlook report on the commodity, though some downside risks exist.
Behind the prediction is the fact that independent coke makers in North China’s Shanxi and Hebei provinces and in East China’s Shandong have joined the push for an additional Yuan 100-110/tonne ($14-15.4/t) rise in coke sales prices effective from December 5. The campaign to lift prices gained momentum shortly after a leading coke producer in North China’s Inner Mongolia lifted its coke selling prices by Yuan 100/t on December 1.
As of noon Tuesday, the country’s leading steelmakers had yet to formally respond to the demand, Mysteel Global heard.
However, the increases could materialize in the short run, the report suggested, given that demand for coke from steelmakers remains firm for now and that the coke producers continue to lose money on coke sales.
The profitability of domestic coke makers has been badly hurt by the steep rises in coal prices, particularly in the later part of November, when local authorities called for stricter safety inspections on coal mines in major producing regions following a spate of fatal mine accidents. Indeed, met coke prices gained some support from coking coal prices last month as the coke producers attempted to pass on the cost burden to their customers, the report said.
Mysteel’s survey among 30 merchant coke producers nationwide showed that as of November 16, they were losing a large Yuan 82/t on week when selling met coke.
Given this, Chinese coke producers had managed to persuade their buyers to accept two coke price hikes last month totalling Yuan 200-220/t – agreed on November 18 and 28 respectively – although the tug-of-war between two sides had been severe, as reported.
Consequently, by November 30, China’s national composite coke price had surged by Yuan 207/t from November 1 to reach Yuan 2,397.6/t, including the 13% VAT, according to Mysteel’s database.
But the adjustments failed to improve the makers’ profits as the persistent rise in coal prices kept the coke makers’ operations in the red. As of November 30, the sampled producers were still facing an average loss of Yuan 18/t, Mysteel Global notes.
The losses also eroded their keenness for production, and most have been restraining their output since mid-November rather than increasing it.
According to Mysteel’s survey, coke output among the 230 Chinese independent coke makers regularly surveyed declined overall in November. Daily coke production among the surveyed makers averaged at 539,800 tonnes/day as of November 29, down by 11,500 t/d from November 1.
On the demand side, during November domestic steel mills continued to produce hot metal at a faster pace compared with year-ago levels, creating steady demand for feed coke, Mysteel Global notes. For example, the 247 Chinese steel mills under Mysteel’s survey produced around 2.34 million t/d of hot metal as of November 30, which was still well above the 2.23 million t/d recorded on the same day last year.
While solid fundamentals for the coke market are expected to support coke prices in the short run, the report suggests that room for coke prices to rise may be not very large. This is because actual steel demand will likely experience a seasonal slowdown this month which may drive down steel prices and ultimately weigh on material prices in turn.