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CCTD proposes 10% cut in coking coal production in May

The China Coal Transportation and Distribution Association (CCTD) has suggested that its member companies cut coking coal production by 10% effective through May, pointing out that the sustained decline in coking coal prices has placed the industry in an extremely tough situation, according to a statement posted on the CCTD’s website on April 18.
“The pandemic has continued to impact downstream industries from this month,” the statement said. “Swelling coking coal imports (over previous months) have also exacerbated the oversupply of coal,” it noted.

To cope with the challenges, CCTD suggested its member companies produce based on market demand, and “reasonably” control their inventories. In detail, the volume to be cut over May 1-31 will be based on 10% of the average processed coking coal output for each member company over this year’s January-March quarter.

However, member companies should faithfully execute long-term supply contracts with customers to ensure that coal is delivered as stipulated in the contracts and that prices are reviewed quarterly, the statement advised.

Besides, CCTD said it was also appealing for restrictions to be placed on coal imports to secure the stability of the domestic coking coal market.

CCTD has a total of 218 corporate members, among which most are state-owned and large-sized coal producers and distributors, according to its website introduction. Annual raw coal production of CCTD members accounted for around 80% of China’s total, according to CCTD. However, CCTD’s proposal to its members for the production cut was a request and not an order, Mysteel Global understood.

“Our group is still viewing the feasibility for the suggestion,” said an official with a large-sized coking coal miner in North China’s Shanxi.

“The (domestic) coking coal market has been bearish recently, and though our group cut long-term coal prices by about Yuan 50-60/tonne ($7.1-8.5/t) for second quarter, coking plants and steel mills remain disinterested in procuring coal,” he admitted. Once the 10% cut is implemented, it will markedly impact the market, he predicted.

As of April 20, Mysteel’s composite price for domestic coking coal refreshed a 24-month low of Yuan 1,079.2/t including the 13% VAT.

An industry source in Central China’s Henan told Mysteel Global that some large-sized coal miners in Central China were still having internal discussions about how to respond to the association’s advisory. “It’s a hard decision, as no one is certain whether other coal suppliers will follow and to what extent they will really cut production,” he commented.

“In fact, the latest reduction in long-term coal prices for Q2 was smaller than we’d expected,” complained a steelmaking source in North China’s Hebei. “Before detailed measures are adopted by coal miners, we will take a wait-and-see stance,” he said.

Despite the existing restrictions on coal imports, any rise in domestic coking coal prices brought about by the 10% output cut may force domestic coal users to import coal, said a Shanghai-based analyst.

“Imported coking coal remains much cheaper than domestic coal, as the seaborne low-volatile premium hard coking coal is sold at some $140-145/t now, or still Yuan 100-200/t cheaper than the domestic coal with similar specification,” he explained.

Written by Sean Xie, xiepy@mysteel.com

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