China is the world's biggest producer and consumer of coke, accounting for about 60 percent of the global trade volume of this raw material. Compared to the increasing demand both in China and in the overseas markets, Chinese coke production appears unable to keep up with the pace. In China, many steelmakers, including even some of the big steel companies, find themselves obliged to queue up at the doors of the coking and coal companies for coke or coking coal, the prices of which have continued to rise in the past months.
Currently, there are over 700 steelmakers in China. Most big local steelmakers have built their own coking facilities near their steelmaking centers. Meanwhile, most medium and small sized steel companies cannot afford to do likewise. Against the background of supply shortages, both the coke and coking coal markets are experiencing booming trends.
The average growth rate of steel output in China is around 9-10 percent year on year. Restricted by production technology and by official measures clamping down on high-pollution small coal mines, the average growth rate of China's coking coal output falls somewhat short of the above figure at just less than five percent. The fundamental lack of balance between supply and demand of coking coal leads to the inevitable increases in price.
Reserves of coking coal in China stands at less than six percent of the country's total coal reserves. However, so far the output of coking coal has reached nearly 15 percent of all national coal output. Thus, it is clear that production of coking coal in China is already at a very high level and it seems very difficult to achieve further increases.
Apart from China's domestic market, the increasing demand for coke in the international markets has also provided strong support for price hikes. So far, the average coking coal price in the main coal producing Chinese province is about RMB 1,500/mt, namely US$219/mt, lower than the average international price of US$300/mt by nearly 27 percent. As for coke, the average FOB price of Chinese coke is around US$680-700/mt, higher than the domestic market price by US$146/mt (after deducting the 25 export tariff).
The higher prices in the overseas markets have stimulated local coke and coking coal producers to sell their products abroad instead of at home. This trend further exacerbates the supply and demand relationship in the local market. It is estimated that there is about a 20-30 percent margin for the further appreciation of coking coal prices in China in 2008. To exert control over the rising price trend, the Chinese authorities are considering restricting exports of coke and coking coal by means of increasing the export tax.