Chinese coke producers may get support from rebounding demand from the domestic steel industry and falling coking coal prices late in the first quarter of 2009, industry insiders told Interfax on Dec. 9.
"In recent weeks, demand for coke from the steelmaking industry began to recover, with many steelmakers resuming operations at facilities that have been idle for months, due to sliding raw materials prices such as iron ore, coke, and electricity," Xiao Ling, an analyst from Shanghai-based Mysteel, told Interfax.
Average spot iron ore prices on the domestic market have fallen to stand at RMB 500 ($73) per ton at present, down 81.75 percent compared to the peak of RMB 2,740 ($400) per ton recorded in April this year. Coke prices have remained remain around RMB 1,200 ($175.18) per ton, after falling 62.5 percent from their peak of RMB 3,200 ($467.15) per ton in August.
The increase in steel demand will not have an immediate impact, however.
"Chinese steel producers still have large coke stockpiles. Once more production facilities are up and running again, those coke stocks will run low towards the end of the first of quarter next year, to the benefit of coke producers," Xiao said.
A further boost for steelmakers will come in the form of the country"s various economic stimulus plans, which are expected to take effect by the end of the first quarter next year. At that time, China"s steel demand is likely to see a rebound, which will in turn increase demand for coke, according to Xiao.
China"s State Council outlined 10 measures on Nov. 9 to boost the domestic economy, including developing affordable housing projects, expediting infrastructure construction, and reconstructing earthquake-stricken areas, which will require total investment of RMB 4 trillion ($585.63 billion) by the end of 2010.
A fall in the price of coking coal, the main raw material for producing coke, will also benefit coke producers in early 2009, Xiao said.
Although so far this year China"s coal prices have not been falling as fast as coke prices, they will continue to slide in line with coke production, Xiao added.
China"s coke production decreased by 21 percent in October on an annual basis, and between 70 percent and 80 percent of national coke production capacity is currently suspended, due to losses caused by falling coke prices.
Thermal coal will also influence coking coal prices, as prices for thermal coal will fall as the country"s power output continues to slump with slowing economic growth, Xiao said. In October, China"s power output fell by 4 percent year-on-year, and according to recent domestic media reports, government officials have said that November"s power output has fallen by 11 percent year-on-year.
The global economic slump may pull down next year"s coking coal prices on the international market by about 50 percent, and domestic coking coal prices can be expected to follow suit, Xiao added.
Domestic coking coal prices have fallen 29.67 percent from a peak of RMB 1,820 per ton recorded in August, to stand at RMB 1,280 per ton now.
Meanwhile, it has been suggested that coke producers may have further support after the market speculated that the government will cut or even cancel the 40 percent coke export tax duty to support domestic coke prices.
In late November, the China Coking Industry Association (CCIA) advised the government to lower the 40 percent coke export tax rate to 25 percent, although Huang Jingan, the general director of the CCIA told Interfax at a conference on Dec. 6, that "coke is the country"s most important strategic resource and the government will not encourage it to flow out of China in the near future.""The government will surely not cut the export tax as it is looking to close more small coke producing facilities due to environmental concerns. More than 10 million tons worth of small-sized coke production capacity has been closed due to environmental problems since the start of this year," Xiao said.
Although things are set to turn around at the end of the first quarter next year, market demand for coke will continue to weaken in the coming period, as it takes time for steel mills to consume their coke stockpiles and for the country"s economic stimulus policies to take effect and support steel demand, Xiao said.
Xiao said that the average price of coke in China will likely stay at a low level next year, compared to this year"s average price, as steel demand may only rebound mildly from the first quarter, and coking coal prices are very likely to fall.
China"s coke production this year is expected to reach 320 million tons, down 2.72 percent year-on-year, while coke exports for the year will stand at 12 million tons, down 21.57 percent year-on-year, Huang said.
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