Chinese domestic coke prices face downward pressure as demand wanes

Singapore — The Chinese domestic coke prices have come under downward pressure, after holding out for five consecutive weeks, with first round of price cuts ranging between Yuan 50-100/mt taking place mid-week in Shandong, Shanxi and Tangshan regions, market sources said.

The sources expect a second round of price cuts in the near-term.

The decline in coke prices came on the back of weakened demand, as Chinese steelmakers grapple with rising steel inventories amid a gloomy outlook on steel demand.

"Demand and supply equilibrium has shifted, supply of coke is almost back to normal. However, demand for coke dropped as steel mills have cut production at a faster rate," an end-user based in Northern China said.

Meanwhile, coke plants also had improved access to raw materials as logistics and transportation have gradually improved in the last two weeks.

"Coke plants profit margins range from Yuan 100-140/mt after the first round of price revision. There is still room for price to go down," a coke producer said.

Market participants said that steel mills were also seeing lower margins, estimated to be around Yuan 150-300/mt for domestic rebar, and Yuan 0-100/mt for domestic hot rolled coil.

Mills were also heard to have reduced production or arranged for temporary maintenance, meanwhile, so as to minimize losses and slow down the rise in steel inventories, dampening their demand for coke.

"We have to shut down three of our blast furnaces as our steel inventory level is too high and downstream demand shows no signs of improvement," a Northern China steelmaker said.

S&P Global Platts assessed Coke 12.5% Ash DDP North China at Yuan 1,910/mt Thursday, down 2.55% week on week, as major steel mills' proposal for price drop have been accepted by coke producers, sources said.

Lower coke prices may support lump

The recent decline in domestic coke prices may lend support to lump prices, with both used in blast furnace for steel making, market sources said.

"Mills under maintenance are resuming operations in March, so demand for lump usage could increase," a Chinese trader said.

Chinese domestic pellet feed and concentrates production also declined due to the coronavirus outbreak, which has supported seaborne lump prices amid a limited availability of domestic pellets, according to a Chinese mill source.

Meanwhile, sources said lump premiums were also firm on the back of a shortfall in mainstream lump supply due to cyclone disruptions in Australia.

However, the strength seen in domestic and seaborne coking coal prices may limit the upside to lump prices. A Chinese trader said that "higher coking coal prices add to the cost of lump usage, and encourage pellet usage instead."

S&P Global Platts assessed the spot lump premium at 28 cents/dry mt unit on Thursday, up 0.5 cent/dmtu on the day, and up 1 cent/dmtu week on week.

The 64% Fe blast furnace pellet was assessed at $118/dmt CFR North China on Thursday, up $1.50/dmt week on week. The premium was assessed at $29.85/dmt CFR North China, up $3.20/dmt week on week.