CHINA COKING COAL: Domestic prices steady but bearishness sets in

Domestic coking coal prices in China are expected to remain stable in the coming weeks, with those for premium materials being supported by limited supply and firm demand.

Metal Bulletin’s weekly assessment of domestic prices for hard coking coal in Shanxi delivered to Tangshan stood at 1,500-1,940 yuan ($237-306) per tonne on Friday March 16, compared with 1,570-1,950 yuan per tonne on February 16. Prices have remained largely unchanged for the whole of March.

Metal Bulletin assesses a wide range of grades produced in the domestic market with a sulfur content of 1.4% and under.

While domestic prices on a delivered basis have retreated since the end of February, the drop for premium products has been muted in comparison with the decline experienced by high-sulfur materials.

This is due to ex-mine prices for the two segments moving in opposite directions, coupled with a drop in freight rates.

Ex-mine prices for low-sulfur hard coking coal – materials with a sulfur content of up to 0.6% – increased by 20 yuan per tonne in early March while those for hard coking coal with a higher sulfur content decreased by around 10-30 yuan per tonne.

For the former, the higher ex-mine prices offset some of the decrease in freight costs. But for the latter, the lower freight costs compounded the lower ex-mine prices, resulting in much lower delivered prices.

For instance, the delivered price of Shanxi Liulin premium low-sulfur and low-ash materials – one of the top-tier brands of domestic coking coal – has fallen by 10 yuan per tonne because its increase partially offset a decrease of 30-50 yuan per tonne in freight costs since March 2, according to sources in the country.

“Freight costs have decreased because mills are purchasing on a demand-basis. There is no restocking going on. There is no shortage of transportation,” a Chinese trader said.

Muted demand
Steel mills have not been restocking as enthusiastically as they did ahead of the Chinese New Year.

Sources told Metal Bulletin that the procurement of raw materials is being made on a need basis.

This had led to the drop in the prices for high-sulfur coking coal as well as freight rates.

In mid-March, Handan, a major steelmaking city in north China’s Hebei province stepped up efforts to lower its emissions by ordering mills to cut production by 50-55% until the end of March.

In Wu’an, a county-level city within the prefecture-level Handan, mills have been instructed to idle all of their blast furnaces until March 31.

Amid various efforts to lower emissions, demand for low-sulfur and low-ash premium hard coking coal remained high among Chinese steel mills, since such materials allow them to produce high-quality coke.

“Premium hard coking coal resources in China are already scarce. [This is why their prices] continued to stay propped up by good demand and high seaborne coking coal prices,” a southern Chinese mill source said.

Rising supply
March is when the country’s “twin sessions” – the yearly meetings of the China’s National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference – are held. But in a departure from previous years, there were no specific regulatory measures implemented this year that required miners to limit their production.

“Perhaps they have gained experience from last year, where mines were asked to prioritize safety [which led to a big drop in supply].

“Hence most mines have resumed production, which resulted in the lower prices for high-sulfur materials,” a second Chinese trader said.

A source at a mill in northeastern China says that there is enough domestic supply to meet its demand because supply is “not as tight as people had expected.”

“Low-ash and low-sulfur materials have been scarcer than high-ash and high-sulfur materials. [But] we have not experienced any disruption in domestic supply so far,” he said.

Coke market
Coke producers in China have been mostly bearish about the coking coal and coke market in April and May amid a weakening of both the steel and futures markets.

Coke prices have gone through three rounds of cuts so far this month amid high steel inventory levels.

“I intend to lower my purchase price for non-blended coking coal with a sulfur content of 1.3% by around 50 yuan per tonne,” a cokery source in Tangshan said. He conceded that suppliers might not accept the price cut, however.

“Even if coke prices fall by another 200 yuan per tonne, coke plants in Shanxi are still profiting. As long as [Shanxi’s cokeries] make profits, they will keep producing and that will keep coking coal prices in the country relatively stable,” he added.

Meanwhile, the bearishness for the April-May period continues to linger.

“Cokeries will stop producing and extend their coking time on their own accord the moment they stop making profits,” the first Chinese trader said.