MONTHLY: China's met coke prices may edge lower in March

Despite a cumulative drop of Yuan 500-550/tonne ($68.5-75.3/t) in China's met coke prices since last October, these remain a victim of the mismatch between coke supply and demand that shows little clear sign of easing, the report argues.

The report foresees on-going pressure factors in the subdued buying interest for feed coke among Chinese steel producers, most of whom were now keeping their feed stocks low to sustain their profit margins.

Also, hot metal production among steelmakers is still climbing at quite a slow pace, as many mills remain cautious about ramping up output – a hesitation stemming from the fact that the domestic steel price recovery is not proving robust enough to entice mills to increase production.

Given these factors, last month, domestic steelmakers determined to protect their margins and to chose to reduce their production costs by persuading independent coke producers to accept three reductions on their met coke sales prices totaling Yuan 150-165/t. All price reductions were agreed after the Chinese New Year holiday (spanning January 28-February 4), as reported.

The reductions also meant that since last October, those Chinese steelmakers without inhouse coking facilities have won no fewer than ten price reductions from the met coke sellers.

By March 3, China's national composite coke price under Mysteel's assessment had plunged by Yuan 148.1/t from February 5 to Yuan 1,348.1/t including the 13% VAT.

The report forecasts that steel mills' demand for coke will remain tepid this month as only a slight recovery is anticipated in hot metal production. On the one hand, domestic steel demand will stay sluggish, limiting any large upward momentum in steel prices, while on the other, higher import taxes and antidumping duties imposed on Chinese steel products by other counties are dampening export business.

On the supply side, however, the report suggests that coke supply is expected to remain relatively high this month. Despite the ongoing decline in coke prices, the drop in coking coal prices has allowed the coke makers to maintain cash flow, preventing them from suffering severe financial strain. Occasional marginal losses may temporarily cool their production enthusiasm, but they are unlikely to conduct large-scale output cutbacks, it points out.

Overall, although the domestic coke market still faces some downward pressure, sentiment in China's steel market may receive a welcome boost in coming weeks, the report suggests. Market players are anticipating that Beijing will set the tone on the country's economic direction and lay out plans for the year ahead during China's National People's Congress that opens on March 5, which could bring benefits for steelmakers.

Written by Winnie Han, hanyueran@mysteel.com

Edited by Russ McCulloch, russ.mcculloch@mysteel.com

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