Taking a comprehensive view of supply and demand, valuation and policies, coking coal futures will continue to fluctuate widely in the short term and do not yet have the conditions to form a one-way trend. In the medium to long term, a shift in the market trend will require the emergence of two key signals.

Recently, the coking coal futures market has seen a tug-of-war between bulls and bears, with prices fluctuating back and forth. From the perspective of core pricing logic, the upward and downward drivers of the market have constrained each other: the upside is suppressed by weak demand in the off-season of downstream sectors, while the downside is supported by stricter domestic coal mine safety supervision and undervalued market valuation. In the short term, coking coal lacks a unilateral trend driver, and the overall market will maintain a wide range of fluctuations.

Weak Downstream Demand

The current steel market is in a traditional off-season for consumption. Steel demand from terminal construction and manufacturing industries remains persistently sluggish, and spot steel prices continue to weaken. Domestic steel mills are generally caught in a loss-making state. Deteriorating profits force steel mills to cut raw material procurement costs, forming a negative feedback loop in the industrial chain: falling finished product prices lead to steel mill losses, prompting mills to actively push down coking coal procurement prices. After coking plants' profits shrink, they reduce coking coal purchases, ultimately dragging down coking coal spot transactions.

The figure shows the profit rate of 247 steel mills

To control production losses, domestic steel mills have continued to intensify production and procurement controls, and the scope of centralized maintenance of blast furnaces has been continuously expanded. Among them, Tangshan area has issued new temporary maintenance requirements for blast furnaces, directly compressing the rigid demand for coke. At the same time, steel mills have actively slowed down the rhythm of coke deliveries to reduce the scale of raw material inventories and only maintain rigid restocking. Hot metal output is the core indicator for observing the demand for coking coal and coke. At present, the hot metal output of national sample steel mills has continued to decline, the overall rigid demand for coke has shrunk simultaneously, and the industry is in a state of loose supply. Downstream steel mills have continuously reduced procurement volume, traders generally hold a wait-and-see attitude, coking enterprises' delivery speed has slowed down, and the on-site coke inventory of coking enterprises has continued to accumulate. On July 27, mainstream steel mills in Hebei and Tianjin launched the second round of coke price cuts: the price of wet quenched coke was reduced by 50 yuan per ton, and the price of dry quenched coke was cut by 55 yuan per ton, which was officially implemented at 0:00 on July 29. Due to profit contraction and poor delivery, the willingness of coking enterprises to actively stock up has dropped significantly. They only purchase a small amount of coking coal on demand, and the overall transaction in the coking coal spot market is weak. Although traders have a strong sentiment to support prices, insufficient downstream procurement demand has created great resistance to the rise in coking coal prices.

Supply remains in a relatively tight pattern

Shanxi, the core producing area of domestic prime coking coal, has continued to implement normalized safety supervision. The number of suspended coal mines in the region has remained at a high level. A total of 57 coal mines in the five cities of Lüliang, Linfen, Changzhi, Taiyuan and Jinzhong have been suspended, involving a production capacity of 75 million tons. Safety supervision has maintained a high-pressure stance. Even for coal mines that have resumed production, their mining intensity is under strict control, making it difficult for capacity utilization to return to previous levels. The room for the overall recovery of domestic coking coal production is limited. Upstream coal mines have a strong willingness to support prices, and the spot price has limited room for decline, forming a bottom support at the spot level. Internationally, after the closing of the Naadam Festival in Mongolia, the number of train crossings at the Ganqimaodu Port has gradually recovered. On July 25, 1,305 vehicles passed through the port. However, the scale of customs clearance has fluctuated greatly and has failed to return to the previous high level. The supply of circulating prime coking coal at the port is limited, and traders generally support prices.

From the perspective of valuation analysis, the current main contract of coking coal futures is discounted by about 100 yuan per ton against warehouse receipt spot prices. The market has fully priced in bearish factors including losses of steel mills in the off-season, declining molten iron output and coal mine resumption of production. Against the backdrop of tight supply and firm spot prices, the deep discount on the futures market provides valuation support, leaving little momentum for a sharp slump in futures prices.

In terms of policies, Shanxi Province has recently introduced multiple policies for the coal industry. On July 21st, the General Office of the People's Government of Shanxi Province publicly solicited opinions from the public on the "Draft for Comment on the Seventeen New Rules for Coordinating the Development and Safety of the Coal Industry in Shanxi Province". These new rules tighten the full-process safety control of coal mines from an institutional perspective, significantly increase the cost of illegal coal mine production, limit the room for overproduction from the source, and will form a bottom support for coking coal prices in the long run.

On July 25, Shanxi Province convened a meeting to analyze the province's economic performance in the first half of the year. The meeting proposed to severely crack down on all types of illegal and unlawful coal mine production activities and keep the bottom line of work safety unchanged. Meanwhile, targeted rectification plans will be formulated for individual coal mines, the acceptance and resumption of production of suspended coal mines will be advanced on a mine-by-mine basis, the approved capacity expansion of compliant coal mines will be carried out in an orderly manner, and the total coal output within the province will be stabilized. Expectations for the concentrated resumption of coal mine production in the short term have heated up, exerting bearish pressure on coal and coke futures prices. Nevertheless, in light of the implementation schedule and enforcement standards, the resumption of production involves strict cycles of rectification and acceptance, making large-scale concentrated production resumption unattainable. Furthermore, safety supervision standards will not be loosened for the sake of output growth, the mining intensity of reopened coal mines will remain restrained, and the output of coking clean coal in Shanxi Province cannot quickly rebound to previous levels. Expectations of production resumption will only trigger periodic sentiment fluctuations, failing to reverse the tight domestic supply fundamentals or drive a sustained decline in prices.

From the perspectives of supply and demand, valuation and policies, coking coal futures will continue to fluctuate widely in the short term, lacking conditions for a unilateral trend. On the one hand, constrained by bearish factors including losses of steel mills in the off-season, declining molten iron output and two rounds of coke price cuts, there is limited room for a rebound in coking coal prices. On the other hand, stringent safety supervision in Shanxi Province, slow resumption of coal mine production and deep futures discounts provide strong support for prices, ruling out the possibility of a sharp slump. Range-bound oscillation will be the mainstream trend in the short run. When prices fall to the lower bound of the range, tight supply and deep futures discounts will dominate market logic; when prices rebound to the upper bound, weak downstream demand will exert intensified downward pressure.

In the medium to long term, a shift in the market trend requires the emergence of two key signals. First, the terminal steel consumption will pick up, the profitability of steel mills will recover, the molten iron output will stop declining and rebound, and the downstream active restocking will drive the improvement in coking coal demand. Second, large-scale resumption of coal mine production in Shanxi will lead to a significant increase in the output of clean coking coal, and the supply constraints will be substantially alleviated. Before the above two signals appear, the coking coal market will maintain a volatile pattern with support below and pressure above.

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