Market: Dip tipped for China coking coal prices in March

Over February 3-28, Mysteel’s composite coking coal price inclined by Yuan 18/tonne ($2.6/t) to reach a four-month high of Yuan 1,144.5/t including the 13% VAT. As of March 5, the price had risen Yuan 0.6/t higher to reach Yuan 1,145.1/t, according to Mysteel’s data.

As reported, the sustained growth of domestic coking coal prices was chiefly due to supply tightness, as China’s ongoing battle against the COVID-19 outbreak saw the reopening of coal mines after the end of the Chinese New Year break on February 2 and the recovery in transportation both seriously delayed. Since mid-February, domestic miners have begun accelerating the pace of restarting operations however, and as of March 3 work had resumed on 83.4% of domestic coal capacity, as reported.

Nevertheless, the resumption of coal mining has outpaced that of coal users – the country’s steel mills, remarked a Shenzhen-based coking coal analyst in South China. “As domestic coal operations have generally returned to normal (in early March), work at many construction sites remains suspended, which will weigh on steel consumption and thus will permeate to raw materials consumption among steelmakers,” he explained.

Not only are domestic supplies of coal recovering, but also arrivals of foreign coking coal are tipped to pick up, analysts noted.

“Mongolia will reopen its key border gates to China for coal exports on March 15, or perhaps earlier than that if the epidemic situation in China eases more quickly,” commented an industry watcher based in North China’s Inner Mongolia. In fact, Mongolia has managed to resume some coal exports to China via rail from Zamyn-uud to China’s Erenhot, he observed.

Coking coal supplies from Australia to China may grow too, the Shenzhen-based analyst added. “COVID-19 is now spreading to some leading steelmaking countries including Japan and South Korea, and some manufacturers have been idled after cases of infections had been confirmed,” he explained. “The reduced steel demand in those countries will finally prompt steelmakers to decline coking coal imports, thus a higher proportion of Australian coal will be shipped to China instead,” he warned.

Besides the easing of supply, the downtrend in prices of merchant coke in China will dampen domestic coking coal prices, Mysteel Global suggests.

In the past two weeks, Chinese steelmakers and coking plants have concluded negotiations to cut about Yuan 100/tonne off merchant coke prices in total. As of March 5, Mysteel’s composite coke price had hit a three-month low at Yuan 1,791.3/t.

“However, the merchant coke price is forecast to keep declining, as coke demand from steelmakers is staying weak,” anticipated a coke procurement official with a steel plant in North China’s Hebei. “We are at the brink of break-even, and the coking plants can only request their raw materials providers to lower prices too,” he said.

Written by Sean Xie, xiepy@mysteel.com

Edited Russ McCulloch, russ.mcculloch@mysteel.com