Abstract

1.       Basic viewpoint: In August, pig iron output kept increasing; in September, blast furnace operating rate stayed at a high level, indicating strong demand on metallurgical coke. Short supply was still the main driving force to 100-yuan hike in September.

In October, short supply of metallurgical coke may not be eased easily. According to statistics, capacity of newly-added coking ovens in October will be 8mn t while at least 9mn t of capacity will be phased out. However, it’s still difficult for metallurgical coke to have further price hikes given big profit gap between steel mills and coking plants.

2.       Trading tips: Steel mills are suggested to purchase on demand and some with low inventory can increase their purchase volume;

coking plants are suggested to ship normally to maintain low or no inventory;

traders with low-priced resources are recommended to take a wait-and-see attitude and purchase low-priced resources.

1 Review on China Met Coke Market in September

In September, domestic metallurgical coke price kept increasing. Price in East and North China went up twice by 100 yuan in total.

Coking enterprises pricing on a monthly basis in Central South China raised the price by 40 yuan/t.

Price in Southwest China altogether grew by 80-100yuan, 30-50 yuan in the first half of month and the same in the second.

Inventory in leading steel mills in East China kept dropping to its lowest in the year at 10-day available. This trend got rebounded only after arrivals of imported coke at ports after September 24, but domestic supply was not good.

Short supply might still give a boost to coke price in October. Nonetheless, profit of coking enterprises was far beyond that of steel mills, some of which had no profit at all since steel price decreased. Thus, it’s hard for steel mills to take further price hike.

It’s expected that price in East and North China will rise by 50 yuan/t in October; that of coke from representative enterprises who price on a monthly basis in Central South China will pick up by 80 yuan/t; that in Southwest China will increase by 30-50 yuan.

SteelHome China Coke Price Index (SHCNCKI) averaged at 1,822 yuan/t as of September 27, up 69 yuan/t from last month.

Table 1: Chinese Coke Price Change from August to September, 2020

Note: data collected by SteelHome; the prices above refer to standard I grade metallurgical coke if not otherwise specified.

2 Analysis on coke inventory

2.1 Inventory kept falling

As of September 24, metallurgical coke inventory of 100 independent coking plants calculated by SteelHome declined by 61,000 t to 120,000 t.

Since coke price continued to increase, coking plants had no inventory generally, and the overall inventory could not decline any more.

It’s still difficult for some steel mills to replenish stock after National Day holiday because of blocked sluice gates along Yangtze river. Meanwhile, coking plants in Shanxi might go through de-capacity. Although there was newly-added capacity, they could not be operated at full load.

It’s expected that coke inventory of coking plants in October will stay at a low level.

2.2  Steel mills’ coke inventory increased

As of September 24, monthly metallurgical coke demand of 80 steel mills calculated by SteelHome rose to 11.554mn t, inventory of which decreased by 370,000 t to 5.196mn t. Inventory in some steel mills in Tangshan, Hebei saw clear drops.

In October, steel price may have an increase, and coke inventory will fluctuate slightly.

Table 2: Coke inventory at 80 steel mills in September, 2020 (million tons)

Source: SteelHome Database

2.3 Inventory at ports continued to fall

As of September 24, coke inventory at four major ports decreased by 260,000 t to 2.66mn t. Traders would be more active in shipping after three round of price hikes in September.

Since cost of transporting supplies to yards went up, traders were more cautious about sending goods to ports. Thus, inventory at ports slumped caused by decreasing arrivals and normal shipments.

Futures in September dropped dramatically, therefore traders mainly took a wait-and-see attitude. In October, traders still had no intention to send coke to harbors.

It’s expected that metallurgical coke inventory in October will keep decreasing.

Table 3: Coke Inventory at China Main Ports in September, 2020 (quantity in 10,000t)

Source: SteelHome Database

3. Price of coking products increased in fluctuations

As September 28, price of most coking by-products rose in fluctuations. Price of crude benzene picked up by 20-70 yuan; that of coal tar increased by 80-100 yuan; that of methanol fluctuated slightly. Coking by-products contributed a little to the profit of coking plants. Theoretically, average profit of national coking plants was 330 yuan/t, up 67 yuan/t from August.

SteelHome China Coke Price Index-Cost (SHCNCKI-COST) averaged at 1,648 yuan/t as of September 28, up 6 yuan from last month.

4. Demand/supply changed in coke market

4.1 Blast furnace operating rate maintained high and pig iron output kept increasing

According to National Bureau of Statistics, in August, China pig iron output was 78.55mn t, up 5% on the year; daily output was 2.5339mn t, up 0.5% from last month to a record high. In September, pig iron output decreased slightly because blast furnace went into maintenance in some regions.

In October, steel market will be more prosperous. In recent years, steel mills invested a lot in the sector of environmental protection in a bid to decrease production limits before heating season.

It’s expected that blast furnace operating rate and pig iron output will remain at a high level in October.

4.2 Coke daily output up 3.27% MoM in August

According to the National Bureau of Statistics, in August 2020, national coke output was 41.28mn t, up 2.9% on the year, the second year-on-year positive growth this year.

Daily output in August registered 1.3316mn t, up 42,200 t or 3.27% from previous month.

In August, price of metallurgical coke in some regions rose by 50 yuan. Coking plants was active in production driven by increasing profit, thus coke output had a clear growth.

In September, operating rate of coking plants decreased slightly at a high level, thus coke output might also have a slight drop.

4.3 Coke exports up slightly

According to customs statistics, China exported 140,000 t of coke in August 2020, slumping by 68.9% on the year and down by 64.1% or 250,000 t from last month.

From January to August, coke imports totaled 2.29mn t, falling 52.1% from 2019.

Annualized exports totaled 3.425mn t, much lower than 6.523mn t in 2019.

In August, daily output of crude steel caught a record high. As more economies recovered from Covid-19, coke demand of foreign steel group went up, which was favorable to our national coke exports.

Given that coke was in shortage domestically, coke exports was expected at a low level.

4.4 Coke imports dropped slightly

According to National Bureau of Statistics, coke imports in August reached 388,000 t, falling by 22,000 tons.

From January to August, coke imports posted 1.542mn t, up 746.9% on the year. As more foreign blast furnaces resumed operation, overseas coke exports to China decreased coupled with their increased price.

It’s expected that imports in September will decrease slightly.

5. Outlook for domestic met coke market in August

In October, the traditional steel consumption season, steel price may increase in fluctuations, which will give a certain support to metallurgical coke market.

It’s expected that price in East and North China will rise by 50 yuan/t in October; that of coke from representative enterprises who price on a monthly basis in Central South China will pick up by 80 yuan/t; that in Southwest China will increase by 30-50 yuan.

Further attention should be paid to:

1) changes in the price of ore and steel; 2) changes in the profit of steel mills; 3) coking de-capacity; 4) production limitation on blast furnace and coking ovens in heating season; 5) inventory changes between industrial chains; 6) steel transactions.

6. Trading tips

6.1 Steel enterprises are suggested to purchase as needed and some with low inventory can increase purchase volume.

6.2 Coking enterprises are advised to ship normally to maintain low or no inventory and contain price growth at a reasonable rhythm.

6.3 Traders of circulation enterprises are recommended to take a wait-and-see attitude and purchase low-priced resources properly.