Coke production should follow the coal consumption reduction target
In the notification dated May 21, several Shandong provincial government departments including the Shandong Development and Reform Commission and the Shandong Department of Industry and Information Technology reiterated a plan to reduce coal consumption and strictly control new coking capacity, distributing a list to the province’s coking plants including detailed tasks of coke output to be controlled.
The distribution of the notification covered 30 major coke enterprises throughout Shandong operating 39 coke ovens and hosting a total of 47.1 million tonnes/year of coking capacity. With that total, some 34.5 million t/y of capacity is owned by independent coke makers and 12.6 million t/y operated by steel plants.
Under the plan, the independent coke plants are required to clip their coke output to no more than 21.1 million tonnes this year, and steelmakers to 9.6 million tonnes or 30.7 million tonnes in total, the notification showed. Though not referred to in the announcement, another 1.3 million tonnes of coke output was produced by coke plants whose coking capacity was eliminated by the end of April, Mysteel Global learnt, making for 32 million t/y for production for this year.
Table: Coke production control plan of Shandong
|
Ownership
|
Capacity
(million t/y)
|
Maximum
production for 2020 (million t)
|
|
Independent
coking plant
|
34.5
|
21.11
|
|
Coking
plant owned by steel mill
|
12.6
|
9.59
|
Total
|
39
coking ovens
|
47.1
|
30.7
|
Source: Shandong provincial departments
Detailed measures will be decided by local governments based on the general plan, according to the notification.
Coke Vs coal – what’s to be reduced?
The plan follows on from the pronouncement of the provincial government last July to reduce coal consumption across the province by some 37 million t/y within this year, based on the consumption volume of 2018. Of this, some 21 million t/y of coal consumption would be reduced via scrapping excess coke-making capacity, the government decided, which resulted in a plan to cut some 16.9 million t/y of coking capacity over 2019-2020, as Mysteel Global reported.
The larger context to this is Shandong’s problematic position – for the provincial and central governments – as China’s largest province for coal consumption. Around 400 million tonnes of coal are consumed annually, with coal providing 80% of the province’s total energy consumption, as reported. Coal as a percentage in total energy consumption has been far higher in Shandong than the national average of around 58% last year. In the provincial government campaign started last July, Shandong planned to reduce coal consumption from 409.3 million tonnes in 2015 to 368.3 million tonnes by the end of 2020.
Part of the motivation for reducing coal use Shandong shares with other provinces such as Hebei, namely to reduce pollution and carbon emissions. To that end last year, the Hebei provincial government oversaw the scrapping of 3.2 million t/y of excess coking capacity, with another 2 million t/y planned to be stopped and dismantled within 2020, as reported. In the case of Hebei however, the removal of coke-making capacity is part of an overall push to remove steelmaking and sintering operations from urban centres, either by eliminating them completely or requiring operators of such facilities to relocate them to coastal areas.
Such a campaign is not in play in Shandong where the focus is purely on massively reducing the use of coal for the good of the environment. And in the notification circulated last Thursday, the provincial government is playing catch-up.
“Although nearly 16 million t/y of coking capacity was removed by the end of April, the reduction in coal consumption has been far slower than the plan,” said a Shanghai-based coke analyst. For example, though some 10 million t/y of coking capacity was earmarked for scrapping within last year, it was not until December that those plants had begun to cease operation – which was of little help to the reduction of the province’s coal consumption last year, he explained.
Output control may affect Shandong’s coke fundamentals
“If the output control task is strictly implemented, Shandong’s coke fundamentals may change from oversupply to supply tightness,” commented another analyst in Shanghai.
“Some coke plants in Shandong used to supply both local steel mills and those in Jiangsu (the country’s second-largest steelmaking province), but for now local steelmakers will have to rely more on coke from Hebei and Shanxi (both in North China),” he said.
As of May 22, six Shandong coking plants, boasting 11.7 million t/y of coking capacity, had started to reduce production, according to Mysteel’s survey the same day, impacting coke supply by an estimated 8,000 tonnes/day.
Shandong produced 12.5 million tonnes of coke over January-April, according to data from the National Bureau of Statistics, which means only 19.5 million tonnes of “production quota” will be left to the rest of the year, Mysteel Global learnt.
“Though speculation on output restrictions has been circulating in the market from several weeks ago, the notification still surprised market participants because such large volumes are likely to be impacted,” said a Beijing-based analyst.
“For this time, Shandong set up an upper limit for coke production but not coking capacity, leaving little room for enterprises to play around,” he said. Sometimes when Chinese authorities oblige sinter plants or coke producers to curtail their “capacity utilization” to curb emissions, producers have some flexibility to manoeuvre. By clearly setting an upper limit on production, coke makers are forced to strictly adhere, Mysteel Global notes.
As of May 22, Mysteel’s composite price for domestic coke increased by Yuan 39.9/tonne ($5.6/t) on week to Yuan 1,727.9/t including the 13% VAT, for a nine-week high.
Leveraging the anticipated supply disruption in Shandong, some independent coking plants in Hebei and Shanxi have already announced plans to raise their merchant coke prices by Yuan 50/t effective this week, just days after they succeeded is winning higher prices last week, Mysteel Global observed.