Since mid-November, the domestic coal tar market (mainly high-temperature coal tar) experienced a one-month recovery period, peaking in early December at a transaction price of 3,460 RMB/ton, a 14% increase compared to the previous month. However, since mid-December, the market has softened due to factors such as widespread price drops in downstream industries and increased enterprise capacity utilization. As of December 19th, the mainstream transaction price of coal tar had fallen to around 3,300 RMB/ton, a weekly decrease of 4%, causing a shift in industry sentiment from optimistic to pessimistic, with continued downward pressure in the short term.
This shift from a strong to a weak market is due to multiple factors, including shrinking downstream demand expectations, a steady increase in supply from coke producers, and a bearish sentiment among traders. These factors have combined to trigger traders to quickly release inventory and pressure companies to lower their auction bids, potentially further exacerbating negative factors in the market outlook.
The downstream supply chain was collectively weakening
The continued easing of supply has further exacerbated the market cooling trend. Data shows that as of the third week of December, the weekly capacity utilization rate of domestic coking enterprises remained above 73%, an increase of about 2% compared to the low point in November, and coal tar output showed steady growth. Although coke prices have undergone two rounds of reductions recently, the decrease in raw material costs has led to increased profits for coking enterprises. Most coking enterprises have not slowed down their production speed, with only a slight decrease in operating rates in some areas due to the depletion of coal consumption quotas. Overall, the operating level of domestic coking enterprises remains relatively stable and is unlikely to decline significantly in the short term.
More importantly, the increasing concentration in the coal tar industry is amplifying the impact of changes in market supply and demand. According to relevant sources, with the widespread application of coal tar hydrogenation technology in recent years, coal tar deep processing enterprises have largely achieved scale and concentration, resulting in an industry structure characterized by "concentration at the top and differentiated competition among small and medium-sized enterprises." Leading companies such as Baowu Group, Sinopec Xingxing Group, Baoshun Group, and Shanxi Coking have formed scale advantages through mergers and acquisitions, with individual plants generally having an annual production capacity of over 300,000 tons, and some companies reaching an annual production capacity of 9.5 million tons.
"Vertical integration has become key to profitability," the source revealed. Companies adopting an integrated approach encompassing coking, coal tar processing, and end-product manufacturing can reduce costs by 180 RMB/ton, resulting in a gross profit margin 8 percentage points higher than the industry average. He also stated that the upstream and downstream supply chain linkage is becoming faster and stronger, with changes in upstream and downstream raw material markets and fluctuations in capacity utilization quickly reflected in coal tar market prices. In the current context of a weakening upstream and downstream market, the increase in market supply may have an amplified effect on price changes.
Traders are becoming increasingly cautious and adopting a wait-and-see attitude
The actions of traders have become a significant driving force behind increased market volatility. Although the upstream and downstream integration of coal tar production is developing rapidly, large trading and distribution companies still play an indispensable supplementary role in the market, especially their practice of stockpiling at low prices and selling at high prices, which further fuels market fluctuations. In November, when coal tar prices were at a low point, a large amount of auctioned goods from companies in Shanxi, Hebei, Inner Mongolia, and Liaoning flowed into traders' warehouses. Then, in December, when prices reached a high point, the release of inventory by traders contributed to the softening of the market.
According to several traders in Henan, Shandong, and Hebei provinces, the current bearish market sentiment has led to increased caution among traders, resulting in a significant decrease in participation in auctions. For example, during the period from December 12th to 18th, the final transaction price of coal tar in the Shandong Laigang auction dropped to 3,320 RMB/ton, the final transaction price in the Hebei Huafeng Coal Chemical coal tar tender dropped to 3,300 RMB/ton, and the final transaction price in the Shanxi Pengfei Group coal tar auction dropped to 3,250 RMB/ton, all reflecting the changing market sentiment.
Industry insiders analyze that the current market cannot rule out the possibility of further downward movement due to inertia, but the operating rate of coke producers is expected to fluctuate only slightly, and the supply of coal tar will remain relatively stable, without significant increases in the short term. At the same time, the overall operating rate of downstream coal tar processing enterprises remains at a relatively high level for the year, and raw material demand remains stable. Therefore, a deep correction in the coal tar market is unlikely, and it is expected to mainly consolidate within a narrow range.
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