Why are China's met coke prices touching record highs?

China's domestic met coke prices have shot up 15% at one go in the last one month to an all-time high. As per data maintained with SteelMint, average prices of the benchmark 30-80 mm met coke emerging from Tangshan with 12.5% ash, 62% CSR and 0.65% sulphur, have risen to RMB 3,210/tonne (t) ($496/t) in Aug'21 compared to RMB 2,780/t ($430/t) in Jul'21, a rise of RMB 430/t ($66/t), the sharpest price movement in the last eight months from Jan-Aug'21.

In fact, in August alone, spot coke prices have continuously moved up with coking plants proposing six rounds of hikes of a total RMB 720/t ($111/t), with the seventh looming up. In the futures market, the prices have been on an uptick from a low of RMB 2,629/t ($406/t) on 3 Aug'21 to RMB 3,293.5/t ($508/t) on 25 Aug'21, up RMB 664/t ($103/t).

Why are China's coke prices heading up?

• Decline in coking coal imports: Because of the disruptions caused by the recent Covid surge in China, imports of coking coal from Mongolia have been notably impacted in August. Also, there have been no imports of coking coal from Australia, because of the ban since mid-Oct'20.Scarce coking coal availability, coupled with market speculations, have pushed up coking coal prices. This scenario, in turn, increased met coke production costs in China, pushing up prices of the end-product. China's data from the General Administration of Customs shows that the imports of coking coal during Jan-Jul'21 totalled 26.133 million tonnes (mn t), down 19.41 mnt or 43% y-o-y.
  
  
• Continuous depletion of coke/coking coal inventory: Since Jul'21, the inventory of coking coal at ports, steel mills and coking plants have been declining. Though steel mills implemented production cuts, the decline in coking coal imports resulted in supply crunch and a consequent inventory reduction, which escalated coking prices and the prices of met coke too.
  
  
• Fall in met coke production: China's met coke production fell for two consecutive months since Jun'21, due to the decreased coking coal imports and increased environmental protection restrictions. Met coke output was at 38.79 mn t in Jul'21, down 3% y-o-y, as per latest data from the National Bureau of Statistics.
  
  

Outlook

The rising met coke price will have a possible impact on China's and world' steel industry.

Being an important raw material for steelmaking, costlier met coke means a rise in the cost of steelmaking, which will support higher finished steel prices in the medium term.

"Currently, there seems to be no quick fix on the demand-supply fundamentals centring around coking coal and coke. Met coke prices may stay elevated in the short term. Later, however, with the expedited steel production cuts, improved air quality during the autumn-winter season and tapering exports of steel, the demand pressure on coke may ease. The coking coal-coke supply-demand matrix may ease too," a source in China told SteelMint.

Prices as on 9:00 IST, 27 Aug. d-o-d changes indicated against closing price of 26 Aug.