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SunSirs: China Coke Market first Fell and then Rose in 2023, What are the expectations for 2024?
January 23 2024 09:55:48SunSirs(Selena)

According to the Commodity Market Analysis System of SunSirs, the average price of domestic coke market in 2023 was 2,682 RMB/ton at the beginning of the year and 2,430 RMB/ton at the end of the year, with an annual decline of 9.4%. The highest point of the year occurred on January 1st at 2,682 RMB/ton, and the lowest point of the year occurred on June 2nd at 2,430 RMB/ton, with a maximum amplitude of 34.9%. The overall trend of the coke market in 2023 is weak and can be divided into two stages: a decline in the first half of the year and an increase in the second half.

Looking back on 2023

Phase 1: 34.6% decrease from January 2023 to June 2023

After two rounds of price hikes and reductions at the beginning of the year in the first half of 2023, the coke market remained stable for two and a half consecutive months. After entering April, prices continued to decline for 10 consecutive rounds. In the first half of 2023, the coke market experienced a total of 12 rounds of price hikes and reductions, with a cumulative decrease of about 950 RMB/ton. In the first half of the year, prices fell by 34.6%.

In early January, there were two consecutive rounds of price hikes, and the holiday atmosphere in the market gradually became stronger as the Spring Festival approached. Due to the impact of poor transportation during the holiday period, the gaming mentality of coke steel was strong. At the end of January, some coking enterprises started the first round of price hikes, while some steel mills started the third round of price hikes.

From February to March, the market went through multiple rounds of coke steel games, but in the end, due to the weak balance between supply and demand in the market, it has been difficult to break, and coke prices have remained temporarily stable.

After entering the second quarter, there were 4 rounds of decline in April, 5 rounds of decline in May, and 1 round of decline in June. The price of raw material coking coal continued to decline, causing coking enterprises to lose cost support. The low cost of entering the furnace led to active operation of coking enterprises, and the operating rate of coking enterprises rapidly increased from 70% to nearly 80%. The supply of coke was relatively loose. At the same time, the lower prices of downstream finished products have limited profits for steel mills, which has led to a demand for coke. In the environment of loose supply and weak downstream demand, coke prices have fallen for 10 consecutive rounds.

After entering June, the finished product market began to recover, and coking enterprises began their first round of price hikes. The mentality of coking steel once again entered a game period, but the micro balance of supply and demand was difficult to break in the short term, and the first round of price hikes had not yet been implemented.

Phase 2: Rise by 38.54% from July 2023 to the end of 2023

In the second half of 2023, the coke market mainly followed the fluctuations of the coking coal market, with a total of 9 rounds of increase and 2 rounds of decrease, with a cumulative increase of 600 RMB/ton, up 38.54%.

In July, there were three rounds of gains, and in August, there was one round of gains. The coke market continued to rise for four consecutive rounds, and the upstream raw material of coke, coking coal, began to rise in price at the end of June. With cost support, the coke market completed four rounds of gains. After entering August, it was still dragged down by the decline in raw material coking coal prices, and the coking market lost cost support, causing a brief drop in prices.

After entering September, the coking coal market took the lead in rebounding, and the mentality of coking enterprises was boosted. At the same time, the downstream finished product market was boosted by the peak season of "golden nine silver ten", and there were several consecutive rounds of price increases. By the end of October, the finished product market had performed poorly, coupled with a decline in raw material coking coal prices, and the coking coal market briefly fell for a round. In mid November, as the coking coal market rose again and downstream steel mills actively entered the market to replenish inventory, the coking coal market continued to rise for three consecutive rounds.

Looking ahead to 2024:

Raw materials: In 2023, the production of raw coal reached 4.66 billion tons, a year-on-year increase of 2.9%, reaching a new high for three consecutive years

Under the influence of the policy of increasing production and ensuring supply, the production of raw coal has accelerated from 2021 to 2023. With the continuous promotion of the policy of increasing production and ensuring supply, the industrial raw coal production in 2023 reached 4.66 billion tons, a year-on-year increase of 2.9%. Imported coal reached 470 million tons, a year-on-year increase of 61.8%. China's coal production has reached a new high for the third consecutive year (4.13 billion tons of raw coal production in 2021, a year-on-year increase of 5.7%; 4.56 billion tons of raw coal production in 2022, a year-on-year increase of 10.5%).

The National Energy Administration announced that in 2024, the country will orderly approve a batch of safe, intelligent, and green large-scale modern coal mines to ensure stable coal production capacity. Research and establish a coal mine capacity reserve system to promote the maintenance of reasonable margins and sufficient flexibility in coal production capacity. This means that the supply of raw coal is still relatively sufficient in 2024, and the supply of raw materials is steadily increasing.

Although the raw coal production in 2023 has reached a new high for three consecutive years, the overall increment of coking coal used for metallurgy is slightly lower, and the growth rate is also slower than other coal types. Due to factors such as a long construction period, strict approval, and safety supervision, the actual new production capacity of newly built coal mines in 24 years will be relatively limited, and the domestic coking coal production will still be relatively low. Affected by frequent accidents in mining areas in Shanxi Province in the second half of 2023, the current national safety supervision is still relatively strong, which will also affect the supply of coking coal. It is expected that coking coal supply will remain tight in 2024.

At present, the operating situation of coking enterprises is less affected by external factors, and the correlation between actual coke production and production capacity is relatively low. The operating rate mainly fluctuates with the profitability of coking enterprises themselves. From the above chart of changes in operating rates of coke enterprises from 2022 to present, it can be intuitively felt that coke enterprises are still adjusting their operating rates very frequently, but overall, they are still adjusting within the range of 70% -80%, and the magnitude will not be too large, especially when dealing with production reduction with caution. From the comparison chart of coke production over the years, it can also be visually observed that the overall coke production in 2023 is relatively stable, with little difference between different months. Mainly because steel mills have been actively increasing production in the past 23 years, the demand for coke has been relatively stable. Therefore, the current production situation of coke mainly depends on the demand of downstream steel mills, and the actual production of coke is closely related to the operation of blast furnaces in steel mills. According to the latest data from the National Bureau of Statistics, the coke production in 2023 was 492.6 million tons, a year-on-year increase of 3.6%. Currently, the overall supply of coke is relatively stable, and it is expected that in the next 24 years, without significant external factors, the supply of coke will also be relatively stable.

Recently, with the cooling weather, the coal coke steel industry chain has entered a seasonal off-season as a whole. Referring to historical data, crude steel production from November to March of the following year is relatively low. The decrease in steel production and the expected decrease in demand for coke. Although there is a winter storage plan for steel mills, it is basically a temporary demand, which will boost the coke market in the short term. In the long run, the demand for coke is biased towards rigid demand.

According to data from the National Bureau of Statistics, China's crude steel production from January to December 2023 was 1.019 billion tons, unchanged year-on-year; China's pig iron production reached 871 million tons, a year-on-year increase of 0.7%. Overall, the steel industry's year-on-year growth rate is slightly lower than that of coke (a year-on-year increase of 3.6%). The crude steel production in China has fluctuated around 1.02 billion tons in the past three years. After entering 2024, with the continued promotion of supply reform and the implementation of policies to control production, it is expected to boost the profitability of steel mills. It is expected that the overall crude steel production will remain stable and increase in the next 24 years.

The volatility of the coke market is mainly influenced by the two major industries of supply (coking coal) and demand (steel). The trends of the three major industries of coal, coke, and steel complement each other, both influencing and restraining each other. Raw material costs and terminal demand are still the main factors affecting market volatility.

Overall, in terms of supply, the tight market expectation for coking coal in the past 24 years will provide cost support for coke. In terms of terminal demand, it is expected to remain stable with a slight increase, which still supports the coke market. The supply and demand in the market will continue to maintain a tight balance. It is expected that there will be upward potential in the coke market in 24 years, but the magnitude is limited. The market will continue to maintain a seasonal peak season trend, as well as a period of fluctuating fluctuations. The specific trend will mainly follow the fluctuations in profits of coking enterprises, and the main factors affecting the market are still steel, coking coal, and policies.


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