The latest indications from several big Chinese steelmakers are that a new round of steel price hikes is being planned. The main factor sparking such an increase is the recent remarkable price increase of coke and its raw material coking coal.
At the end of March, the FOB price of coke was close to US$530/mt at the major Chinese ports, while the average domestic price was about RMB 2,500/mt (US$360/mt).
According to reports from the ongoing annual coal export negotiations between China, Australia, Japan and South Korea, the coking coal price hike for 2008 will consist of almost 200 percent. The major steelmakers from Japan and South Korea have accepted this price hike and the new price of coking coal exported from Australia will be US$300/mt. Meanwhile, an unconfirmed report from China's government indicates that Japan is prepared to accept a price hike of 120-200 percent for coking coal exported from China.
The prices of coke and coking coal have continued to rise in recent years due to the increasing global demand for steel. In February 2008, Australia - the biggest coal exporter in Asia - was seriously hit by floods. This natural disaster led to the almost complete halt of coal production in Australia, and in particular of coking coal production.
In consequence, more international coking coal buyers are obliged to turn to China for their purchases of coking coal and coke. However, though China is a big coal producer, but it is not a great exporter of coal and coke. In fact, due to the serious environmental pollution caused by coke producing enterprises, the Chinese government has been closing down outdated and high-pollution coking mills. Thus, coke is currently in short supply in the Chinese domestic market.
Furthermore, in order to restrict exports and meet local demand for coke, the China state increased the export tariff on coke from 15 percent to 25 percent, effective as of January 1, 2008. Although local prices of coke and coking coal in China were already at recorded high levels, the huge demand has pushed prices even higher.
Steelmakers simply have to accept the fact of rising raw material costs. It is in this context that the local steelmakers in China are planning to transfer this cost pressure on to the price of their steel products. Thus, domestic steel prices in China, in line with the trend seen globally, are expected to continue their upward trend in the future.