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Chinese coking coal and coke scenario

Securities Times reported that though power coal crisis has been eased, coking coal price tends to rise. However, industry analysts point out the price hike is unlikely to last long as downstream coke sector eyes production cutback and less purchasing by steelmakers in February.

Xishan Coal Electricity Group, following Jizhong Energy Group has decided to raise coking coal price by CNY 100 per tonne to CNY 180 per tonne, the second price rise in this year and the third hike since August of 2009. The highest increment is 13.54%, more than previous 11%.

Some analysts believe latest price rise is triggered by previous snowstorm. According to Shanxi Antai Group, coking coal transportation was hindered due to tight power coal supply hence steelmakers in some regions witness insufficient coking coal stocks. On the other hand, Shanxi's coking coal capacity has been impacted by previous trim of coal sector.

Mr Wang Guangju an analyst with Huatai Securities said the price rise is aroused by profit maximization. He said that "Price for Australian coking coal has reached CNY 1,600 per tonne at Qinhuangdao Port, higher than the CNY 1,510 per tonne for fat coal offered by Xishan Coal Electricity Group, hence domestic coking coal price can move upward."

While upstream coking coal companies benefit from coal price hike, downstream coke companies, especially companies without their own coal mine such as Shanxi Coking Group and Antai Group will suffer rising costs.

Statistics show coke price in Taiyuan declined in the first week of February. Price for first grade metallurgical coke fell by CNY 30 per tonne or 1.6% from a week ago to CNY 1,850 per tonne and that for second-grade coke dropped by CNY 20 per tonne or 1.1% to CNY 1,780 per tonne. Ascending coking coal price will further embarrass coke companies.

Guiding price of CNY 1,850 per tonne FOV for second-grade coke has approached production costs or even declined below coking coal cost. Mr Wang said "Shanxi's coke industry is now cutting output to underpin market price. If there is no fresh demand, or coke price fails to rebound, coking coal price may be pressed to decline."

Some analysts further point out that steel price has not increased yet. Given high steel operation rate, steel stocks start to rise hence coking coal price is unlikely to increase further.

(Sourced from Securities Times)