CHINA COKING COAL WRAP: Domestic prices to be stable in May as seaborne prices stay high

Domestic coal prices in China are expected to remain stable for May, with supply tightness in the seaborne coking coal market limiting downward movement while weakening sentiment in the steel market and lack of production curbs are thwarting an upside.

The price of Shanxi mainstream hard coking coal from Liulin county, with 0.6% sulphur and 9.5% ash, has stayed unchanged at 1,360 yuan ($197) per tonne free on rail since March 10.

Metal Bulletin’s price assessment of Chinese domestic hard coking coal, Shanxi spot market, delivered to Tangshan, had remained in the range of 1,450-1,610 yuan ($210-233) per tonne for seven weeks, as of Friday April 28.

“Domestic coking coal prices will remain stable in May as seaborne cargo prices are still too high for Chinese mills to accept,” a Chinese mill source said.

Seaborne prices started to rally in the first week of April as buyers in Asian markets, except for China, started to scramble for coking coal supplies. Metal Bulletin’s fob Australia premium hard coking coal index shot up to $300.04 per tonne, while its cfr China premium hard coking coal index rose to $230.97 per tonne.

Prices have since retreated, however, as panic started to subside with the rail systems coming back into service.

However, Chinese buyers who have the option of domestic coal prices are still avoiding seaborne cargoes, and thus supporting the domestic market.

“Mills will only start buying when the seaborne coking coal prices are nearly on a par with their domestic counterpart,” another Chinese mill source said.

“Mills in China stocked up in February and early March, and any gaps can be filled by domestic supply,” a third Chinese mill source said.

Lacklustre coal demand in China was underlined this month when mills began offering cargoes for sale in the international market at prices of $250-300 per tonne fob China early in April.

Shanxi Coking Coal Group, the biggest domestic producer, sold 300,000-600,000 tonnes of domestic coal of various grades at prices of $230-300 per tonne fob China, according to various sources.

No domestic tightness
With the government deciding not to implement the rule restricting production to 276 days per year, domestic coking coal supply in China has been ample this year.

The country’s National Development & Reformation Commission (NDRC) said that its priority was to maximise production at Shanxi coal mines, according to local media reports. These also said that the Shanxi provincial government has also scrapped the 276-days rule.

“The NDRC this week said that its objective for the rest of this year is to maximise production, targeting thermal coal as power companies have made losses in the first quarter. This will have a knock-on effect on coking coal,” an international trader said.

The ample domestic supply in China is also augmented by imports from Mongolia.

In March, China imported 2.4 million tonnes of coal from Mongolia, up by 55% year-on-year, according to Chinese customs data released on April 26.

Weak steel market, pollution control subdues demand

On the demand front, the government’s strict implementation of pollution controls has affected operating rates at coke plants.

“Coke plants in China are still under pressure from strict environmental standards, and most are running at 70-80% of total capacity, hence they are not keen on procuring coking coal,” a Chinese trader said.

Crude steel output in China went up in the first quarter of this year as mills benefited from high profit margins. According to the latest data from the National Bureau of Statistics, output rose to an all-time high of 72 million tonnes in March.

However, Chinese market participants think that downstream demand has been overestimated and even the current peak usage season has failed to perk up demand. As a result, profit margins have been narrowing.

According to data from Metal Bulletin, eastern China domestic prices for hot rolled coil have come down by 17% from their peak in February, while rebar prices have also slumped, going down by 20% in April.

Some mills have already cut their list prices on finished products for May, putting a strain on mills’ margins.