China's met coal market outlook looks dim in August

Mysteel Global : The outlook for China's metallurgical coal market in August is generally gloomy, as the anticipated reduction in steel output this month could weaken the mills' appetite for the feed material and weigh down coking coal prices, Mysteel predicted in its latest report on the commodity.

Mysteel's latest survey indicated that as of 31 July, around 38 Chinese steel mills had announced plans to hold maintenance stoppages sometime between late July and end-August, with the reduction in construction steel production during the period likely to total 3.36 million tonnes (mnt), as reported.

With new standards for rebar production and performance to become mandatory from end-September, both mills and traders are under mounting pressure to sell off their old-standard rebar stocks in hand, as Mysteel Global has reported. This is prompting many mills to halt production temporarily, sources said.

In addition, the deeper losses that more mills suffered last week, resulting partly by the urgent sell-off activities of rebar, have also curtailed mills' interest in new production. For example, only 6.5% of the 247 Chinese steel mills under Mysteel's survey were able to earn some profits on sales of steel as of 1 August, nearly the lowest percentage in a decade.

Meanwhile, domestic prices of metallurgical coke prices are expected to be reduced by over yuan 200/t ($28/t) this month as mills try to limit their losses, the report noted. This could prove an additional drag on coking coal prices this month, as coke producers may seek to press their feed coal costs lower to allow some room for profit, it predicted.

Yet a slim chance exists for the domestic coking coal market to enjoy a slight rebound in late August, as the weakness in steel market fundamentals may ease, the report suggested.

Average daily hot metal output among the 247 mills may not fall below 2.3 mnt/d this month despite the announced output cuts, and mills may recover their production quickly after the switch to the new rebar standards takes place on 25 September, it said. This means the coking coal market may see new upward momentum in late August after a period of decline.

In the second half of July, the coking coal market began tracking lower after staying range-bound in the first half of the month, reflecting the impact of the softening steel market. As of 31 July, the national composite coking coal price under Mysteel's assessment came in at yuan 1,614.3/tonne including the 13% VAT, down by yuan 67.2/t from a month prior.

In parallel, the price of Anze primary coking coal (ash<9.5%, VM<20%, sulfur<0.5%, GRI<85, Y>15, MT<10%, CSR>68%) mined in Linfen city, North China's Shanxi province, decreased by yuan 60/t on month to yuan 1,840/t by the same day, on ex-works basis including VAT, Mysteel's assessment showed.

In July, the auction market for coking coal saw nearly 17% of the total of offered cargoes fail to reach deals, up from June's 13% average, Mysteel's tracking data showed.

The sluggish trades had led coal stockpiles at mines to swell, even though mining operations were slightly lower on month. For example, the stocks of washed coking coal at the 523 Chinese coking coal mines that Mysteel monitors grew by 8.8% on month to 3.08 mnt as of 31 July.

This article has been written in accordance with an article exchange agreement between Mysteel Global and BigMint.