Soft second half for Chinese coke market

Soft second half for Chinese coke market

The current bearish market in China has left steelmakers with little choice but to cut their prices. This in turn has likewise affected the coke market. The recent market condition of coke in China can be characterized by gradually decreasing output, drastic domestic and international price decline, as well as accumulating inventory. Chinese coke output increased during the first three months of the year but then dropped slightly in April. In May and June, monthly output went up once again, but it then slid for the next three months. The nine-month coke output was 167.8 million metric tons, a year-on-year increase of 27.34 percent. While the growth rate is significant, it is down form the previous year’s rate of 35.5 percent. Because one metric ton of coke is consumed for every two metric tons of crude steel produced, the oversupply of coke is unlikely to be reversed even if coke and crude steel exhibit similar growth rates. According to statistics from China’s Coking Industry Association (CCIA), in the first half of this year, 44 coke furnaces representing an aggregate output of 21 million metric tons were under construction in China. Of these, twenty-one six-meter-high coking chambers representing 11.6 million metric tons of annual output were being built by large scale steelmakers such as Anshan Steel, Benxi Steel, Wuhan Steel, Shagang, Baotou Steel, Jinan Steel and Laiwu Steel. These furnaces will be brought on stream both this year and next. The addition of the abovementioned capacity will be offset by the elimination of outdated production capacity. For example, by the end of June 2005, 9.84 million metric tons of outdated capacity had been eliminated in Shanxi Province. In perspective, Shanxi’s cumulative annual output exceeds 100 million metric tons. Furthermore, at the end of September, China’s National Development and Reform Commission revised its standards for enterprises seeking to be licensed in the coke industry. 94 out of 130 enterprises passed the initial examination, but the final list will be announced after further spot examinations. This shows that Beijing is trying to exert strict macro-economic control over the coking industry. During August, domestic coke prices declined by a small amount. Coal prices declined as well, mainly due to the macro-economic policy. Coke prices were relatively stable in September, although crude coal prices in fluctuated. However, coal is now in short supply in some regions, as the coal industry is in the midst of restructuring and winter is approaching. The coking coal prices have given support to the domestic coke price. Some steel mills even slightly increased their procurement prices. The current ex-factory prices of second-grade metcoke in Shanxi Province are in the RMB 800-820/mt ($99-101) range, with loaded-truck prices in the RMB 920-950/mt ($114-118) range. First grade metcoke ex-factory prices are in the RMB 850-900/mt ($105-111) range, with loaded-truck prices in the RMB 950-1’000/mt ($118-124) range. The current purchasing price of prime coking coal in northern China is in the RMB 650-700/mt ($80-87) range, while eastern China is seeing prices in the RMB 800-860/mt ($99-106) range. The price difference is a function of region and standards. According to the statistics from Tianjin Customs District, the export volume of coke in September declined 35.7 percent year on year to 591’200 metric tons with an average price was $155.87/mt FOB. The export volume at Tianjin Port alone was about 450’000 metric tons, which was the lowest in 2005. SteelOrbis Shanghai