CHINA COKE WRAP: Mill margins continue to push domestic, export prices

Strong steel markets and good margins have kept pushing up metallurgical coke prices in China, for both domestic sales and exports.

Deals were heard concluded in the past fortnight at $298-300 per tonne fob China, inclusive of a 17% VAT, for shipments with a coke strength after reaction (CSR) of 65%, but offers had already been raised to $310 per tonne fob this week.

Metal Bulletin’s price assessment for coke cargoes with 65% CSR, 12.50% ash, and in physical sizes of 30-90mm was $300-305 per tonne fob China, inclusive of VAT, on Tuesday August 8.

This was up by $10 per tonne week-on-week, and was $10-15 per tonne higher than the $285-295 per tonne fob heard two weeks earlier.

By Wednesday, China’s domestic coke market had swiftly settled a fifth round of price increases, this time of 80 yuan ($12) per tonne – only two days after suppliers proposed the rise on Monday. This has extended the price gains to 280 yuan ($42) per tonne since late June.

Major Northern China steelmaker Hesteel will raise its purchase price for the blast furnace fuel by 80 yuan ($12) per tonne from Thursday onward, while Eastern China’s Rizhao Steel implemented a rise by the same amount from Wednesday, according to sources.

Hesteel will be paying 2,040 yuan ($304) per tonne for first-tier coke with 65% CSR delivered to its facilities.

With steelmaking profits staying high – at more than 1,000 yuan ($149) per tonne – the coke price rises are easily achievable, according to a cokery source in Northern China.

Billet price in Tangshan, a weathervane for the ferrous markets, rose again by 50 yuan ($7.45) per tonne on Wednesday to a multi-year high of 3,750 yuan ($559) per tonne.

A fresh round of coke price increases may be seen soon, the source added.

Another factor behind the momentum in the coke market is reductions in coking production.

Coke prices have advanced more frequently in Eastern China’s Shandong and Jiangsu provinces than in the Northern Shanxi and Tangshan areas, a trader in Beijing pointed out.

Another group of emission inspection teams is being sent to provinces including Shandong, as part of the preparations for the 19th National Congress of the Communist Party of China to be held in Beijing later this year, according to an analyst in Shanghai.

This has led local coke producers to reduce their production rates “in response to the state’s call”, he said.

A source at a cokery in Tangshan told Metal Bulletin that this unit is likely to trim production as well, under pressure from the inspection teams.

“A production restriction of 20-30% has always been in place this year amid ‘normalised emission-cut measures’,” a cokery source in Shanxi province said.

The potential steel production cap to be imposed from November to March will have consequences for the coming winter heating season, but the first Northern China cokery source said that “details remained unclear”.

While some worry that blast furnace idling would weigh on coke prices, the scale of coking production cuts “would not be small either”, he added.

The most-traded January coke futures contract on the Dalian Commodity Exchange closed at 2,145.50 yuan ($320) per tonne on Wednesday. This was up by 16.7% from the close of 1,838 yuan ($274) per tonne two weeks earlier, and 68.1% higher than a low of 1,276.50 yuan ($190) per tonne seen on June 6.

The price of the January contract has also exceeded that of the September contract this week, to shift from backwardation to contango, indicating a relatively optimistic outlook.

“Domestic coke prices are just too good, and sellers are less willing to do exports,” an exporter source said.

In the meantime, overseas buyers are hardly able to afford Chinese coke any more, market participants said.

“We are no longer sourcing from China, because cargoes are much cheaper in Poland and the CIS region,” a source at a Europe-based trading house told Metal Bulletin.

Those who needed cargoes had largely booked before prices went above $280 per tonne fob, and current prices above the $300-per-tonne mark are difficult to transform into trades, a trader in Shanghai pointed out.

A source at a mill in Japan said that it was not consuming any Chinese coke because of the high costs.

Indian mills were either taking Japan- or Poland-origin coke, or relying on domestic supplies, according to a local source.

There are only pockets of demand heard from Vietnam and Malaysia.

China exported 720,000 tonnes of coke in July, down by 34.6% year-on-year but up by 2.3% month on month, preliminary customs data showed. Exports in the first seven months of the year were down by 17.6% to 4.82 million tonnes.

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