After tough negotiations, two leading steelmakers in North China's Hebei and East China's Shandong provinces bowed to the demands of independent producers of metallurgical coke this week and finally agreed to pay RMB 50-55/tonne (t) ($6.9-7.6/t) extra for the feed material on Wednesday.
The mills' concession on higher coke prices came as a surprise to most market players when the likelihood of a softening coke market had been increasing, Mysteel Global noted. Industry chatter suggested that the steelmakers conceded to encourage coke deliveries to their works as their inventories were running low.
Indeed, coke stockpiles at the 247 Chinese steel mills under Mysteel's tracking had declined for three consecutive weeks to stand low at 5.56 million tonnes (mnt) as of 20 June, lower by a marked 8% on year. After the price hike, these mills' coke stocks had risen by a small 0.2% on week to 5.57 mnt.
"As the operations of more mills are becoming unprofitable, they are probably plotting a new cut on coke prices immediately after they build up their coke inventories," a Shanghai-based analyst predicted. "This could also coincide with a clearer retreat in their hot metal production due to the seasonal lull in steel consumption," she said.
Mysteel's latest monthly report predicted that the daily hot metal production among the surveyed 247 steel mills will drop to 2.37 mnt/day in July, based on findings that the productive hot metal capacity to be taken out of service next month will total 45,600 t/day while the capacity of blast furnaces being restarted will total only 30,800 t/d, as reported.
In fact, this week saw the surveyed 247 mills' hot metal output easing, with the daily average during 21-27 June dipping by 5,000 t/d on week to 2.39 million t/d.
Importantly, domestic finished steel prices continued to decline, with heavy rains in South China and scorching weather in North China are still interrupting construction activities, causing steel product inventories to mount again.
This has kept most coke makers cautious about stepping up production and taking more feed coal as well. Several survey respondents in Northwest China's Shaanxi said they may not lift their run rates higher in the short run, as profitability for both coke makers and steel firms could hamper any market recovery.
Mysteel's survey showed that as of 27 June, the 30 merchant coke producers monitored nationwide managed to make a yuan 44 profit on each tonne of coke they sold, up from the miserable yuan 2/t margin they made in the week before. "But this means coke producers could be at risk of slipping into losses again should feed coal prices rise," a market watcher said.
Note: This article has been written in accordance with an article exchange agreement between Mysteel Global and BigMint.
