China's metallurgical coal supply and demand during the 14th Five Year Plan period (2021-25) is expected to remain balanced, on the back of higher steel scrap usage expectations that could eat into coking coal demand, sources said Sept. 21.
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The National Development and Reform Commission sees China's 2025 steel scrap usage rising to 320 million mt on carbon neutrality goal, its latest data showed. China used 260 million mt steel scrap back in 2020, replacing 410 million mt 62% iron ore.
China is aiming to reach carbon neutrality by 2060, but is planning to hit peak carbon emissions much earlier, by 2030. As part of China's broader carbon plans, the steel industry has been tasked with keeping its 2021 production lower than 2020 levels.
During the 2021-25 period, Chinese crude steel output could plateau, which would cut molten iron output by 50 million mt and trim 21 million mt of coking demand in the period, Baosteel Group's research arm Hwabao Securities said.
This translates to steelmakers consuming 28.1 million mt less met coal during the period.
If 2021-25 domestic steel scrap volume is higher than expected, and steel demand sees steep fall, cutting molten iron output, then coking coal demand could weaken, Hwabao Securities said.
China's steel scrap originates from three sources; from steel sector's steel scrap, industrial sector's processed steel scrap and amortized steel scrap, according to Beijing-based China Securities Co, or CSC.
Coal supply and prices
Meanwhile, since March, China has tightened environmental controls for the coal industry, where miners are banned from over production, treating excessive production as an offense, sources said.
Cinda Securities in its report said strict coal sector monitoring, plus the need for suppliers to get license for selling in other regions, have slowed down the release of domestic coking coal output capacity, resulting in sharp fall in supply.
Meanwhile, Shandong government's plan of shutting down 27 coal mines with under 300,000 mt/year output capacity in 2021-22 has squeezed domestic met coal supply, according to Cinda Securities.
The coal mines have a combined 34 million mt/year of met coal capacity. Met coal is a key component used to produce steel.
Overall supply squeeze, also aided by the absence of traditional import sources, has propped up domestic prices that have been seeing fresh record highs in recent weeks.
Domestic prices were seen at Yuan 2,220/mt ($343/mt) on Sept. 15 for semi-soft coking coal in the Shandong province, up 55.2% from early August, according to S&P Global Platts data.
Shandong is ranked China's second coking coal hub, with proven met coal capacity of 127 million mt, but its coal output has slumped to a historical low in 2020, led by supply-side reforms gradually lowering its coal output since 2016, according to Cinda Securities.
China's National Energy Administration sees Shandong's coal output by 2025 to be stable at 100 million mt, lower than the planned output of 110 million mt in 2021.