Alarm bells for China’s coke industry?
Increasing production costs, decreasing prices and blind capacity expansions are putting the squeeze on China's independent coke makers. According to Hua Zugui, president of China Coal & Coke Holdings Company, China's coke industry is on the verge of entering its worst period in the last three years. Beginning from the second quarter of 2005, the ex-factory price of coke dropped to RMB 900-1'000/ton ($111–123/ton) for domestic markets and to $170-200/ton for international markets. Such prices are a far cry from the $390/ton that coke fetched in June 2004. Hua Zugui said that only about 1/3 of independent coke enterprises in China are able to make profits slightly. Those that are not profitable are cutting their production or looking to leave the market entirely. One of the factors that coke producers have to contend with is the soaring price of coking coal. The average price of coking coal increased 119 percent this year to reach an unprecedented level of $113/ton. Hua Zugui insists that coke prices will not fall below $150/ton in the international market, but his words bring little solace to producers who continue to see their margins erased by the raising costs of raw material. The blind expansion of coke production capacity seems to have eased in the previous months, and companies are now more cautious on making new investments. Therefore, the coke industry will not see any major production increases in the future. This should help balance the supply and demand situation sometime over the next year. It is estimated that China's annual coke yield capacity will reach 260 million tons by the end of 2005. Demand is expected to come close to 220 million tons. With Beijing's increased hands-on approach in dealing with the steel industry, the expansion of domestic coke demand is expected to be curtailed to some extent this year.