Chinese Met Coke Prices may Fall as Tangshan Imposes Strict Limits on Steelmaking

China's largest steelmaking city of Tangshan has imposed a 50% reduction in the blast furnace, sintering and pelletizing operations for most of the city's steel mills until 1 August, which should support steel demand in the near term.

Met coke prices may also fall on Tangshan's decision. In the domestic coke market, sentiments were weak amongst Tangshan coke makers due to the imposition of Tangshan output cuts. Sources mentioned that the second round of price cut of USD 14-15/MT would mostly be accepted early next week.

But the market is still uncertain over how strictly mills will implement the restrictions. Also, if steel prices rise because of this decision, there is always a chance that mills will demand more premium grades of iron ore, boosting prices, mentioned by a Singapore-based trader.

"Our mill got the notice on the restriction and we will follow it strictly. The restriction was on sintering, blast furnaces, and converters, so it would definitely impact our normal production. So far, we have idled a few blast furnaces and sintering machines," said the manager of a Tangshan-based mill.

Tangshan city has been struggling to reduce emissions and previously pulled up several mills for not fully implementing production restrictions in the autumn-winter season. Impact of the latest restrictions will be muted to some extent as they come in the off-season period for steel sales, which typically lasts until August.

Six steel mills, which have been graded A for their adherence to emissions norms, will have to reduce steelmaking operations by 20%, while all other mills will have to make a 50% cut in operations until 1 August. The six mills are Tangshan Steel, Shougang Qian'an, Shougang Jingtang, Delong, Wengfeng and Sinogiant.

The city government will make a decision on the restrictions after 1 August, depending on the air quality and meteorological conditions at that time. The city expects to reduce the concentration of carbon monoxide, sulfur dioxide and nitrogen oxides with these restrictions.

Production restrictions in the autumn-winter season of 2018-19 were quite loose and crude steel output actually rose over this period. But market participants expect the current set of restrictions to be more strictly implemented, which will boost steel prices.