MYSTEEL: China's met coke prices to soften further in H2

Chinese prices of metallurgical coke are likely to head down further in the second half of this year amid expectation of lower hot metal output at steel mills, but the declines may not be deep, Mysteel predicts in a latest report.

According to the report, coke price fluctuations are estimated to be within a range of Yuan 300/tonne ($43.4/t) during the period with some supports emerging in the end of this year.

In the first quarter, met coke prices generally stayed steady after a Yuan 100/t decline early this year. The second quarter witnessed consecutive price drops totalling Yuan 850/t at most in line with the weak performance of steel market and coking coal price drops.

By the end of June, China's national composite coke price under Mysteel's assessment reached Yuan 1,888.1/t and including the 13% VAT, compared with Yuan 3,212.5/t over the same period last year.

The weak run of coke market could be ascribed to a surplus of domestic coke production capacity and abundant supply in the first half of this year, Mysteel pointed out in the report.

Chinese coke producers have been operating at high capacity, driven by their decent profits that improved markedly alongside the descending costs on coking coal from early March this year. Mysteel's survey showed that over January-June, a sample of 30 merchant coke producers nationwide earned an average of Yuan 7/t on selling coke. Specifically, they lost Yuan 21/t in the first quarter but began to earn about Yuan 30/t in the second quarter.

Over the first half, daily average coke production of China's independent coke enterprises and steel mills reached about 1.144 million tonnes, up by 29,000 tonnes on year.

And the country's total coke output over January-June increased by 2.4% on year to about 207 million tonnes. Since the beginning of this year, the impact of other external factors on coke production has been significantly reduced, and the production was basically determined by their profits.

Besides, coke makers' production enthusiasm was also well boosted by the rising coke demand from steel mills since the beginning of the year, with mills' hot metal output once exceeding a historical high in recent years.

Chinese steel mills have ramped up production during most time of this year, for example, Mysteel's monitoring of the 247 Chinese steelmakers showed that their total production of hot metal reached 429 million tonnes during the first half, rising by 5% on year.

But steel mills meanwhile tended to cap coke stocks at a low level this year due to weak domestic economy, which has consecutively weighed down coke prices over April-June. For example, mills in Tangshan city in North China's Hebei province have lowered their standing stocks to seven days' worth of consumption, compared with previous 10 days, Mysteel has found.

In fact, China's coke supply and demand were largely matched over January-June, the report pointed out.

While in the second half, coke market is likely to face further downward pressures, but it will not be very steep, Mysteel predicts.

China's coke market over July-December will present a pattern of relatively loose supply and soft demand, which will weigh down the coke prices accordingly," the report said.

The prediction was mainly based on the assumption that China's central government will introduce related plan to cap crude steel output this year. If the production restrictions implement in the future, coke demand from downstream mills will also shrink as a result.

Moreover, the country's real estate and construction sectors remain unclear despite that market participants are still expecting that the central government will unveil fresh economic stimulus measures to spur steel-intensive industries.

Under these circumstances, domestic steelmakers will not likely release very strong demand for coke. In fact, they have been adopting low-inventory strategies and just purchasing enough cargoes for immediate production needs since last year, which was mainly aimed to control production cost and claw back some margins.

According to the report, coke prices may see some upward corrections in the fourth quarter, as mills always restock raw materials towards the year-end for preparation of consumption in winter. But overall, coke prices will continue to fluctuate to lower levels in the second half of this year, with an estimated decline of Yuan 300/t.

In terms of coke exports, the report added that it is difficult to see significant increase in coke exports from China to global markets amid the weak overseas demand.

This article has been exchanged under article exchange agreement between SteelMint and Mysteel Global