From the perspective of the industrial chain, the upside of coking coal prices depends largely on whether steel mills can pass on costs to the downstream, with their upward space constrained by steel mill profits.
Coke futures have continued to strengthen since August 4, with the price of the 2701 contract rising from 1,782.5 RMB per ton to 2,258.5 RMB per ton, hitting a new high for the year. As the peak season for terminal demand approaches, whether coke prices can continue their upward trend has become the focus of market attention. Starting from supply and demand, inventory, industrial chain profits and other aspects, the author analyzes the subsequent trend of coke futures prices.
On the supply side, coke supply showed a trend of "active contraction" in August. Affected by the widening losses, major coking enterprises have increased their production restrictions. According to the latest data from Mysteel, the capacity utilization rate of 230 sampled coking enterprises stood at 64.46%, a month-on-month decrease of 4.25 percentage points; the average daily output was 445,600 tons, a week-on-week decrease of 29,400 tons. In terms of profits, as of August 28, the national profit per ton of coke from Mysteel was -127 RMB. Coking enterprises were forced to restrict production and cut output under deep losses. Although the spot price of coke has started to rise recently, the increase in upstream raw materials was even greater, and the cost pressure has not been effectively alleviated by the price hike. Coking plants in major producing areas such as Shanxi and Inner Mongolia have generally reduced output by extending coking time and lowering load. Looking ahead, if the spot price of coke rises continuously and the profit per ton of coke is effectively restored, the production restrictions of coking enterprises are expected to be relaxed, and coke output will rebound. If losses persist, the low supply pattern will remain.
On the demand side, according to the latest data from Mysteel, the daily molten iron output of 247 steel mills is 2.366 million tons, and the capacity utilization rate is 88.84%. This output level can still provide rigid demand support for coke demand. However, affected by the rise in upstream raw material prices, the profits of steel mills have been under sustained pressure. As of August 28, the average profit of electric furnaces for construction steel was only -102 RMB per ton. If raw material prices continue to rise, the continuous decline in profits will force steel mills to cut production, thereby compressing coke demand and forming a negative feedback loop in the industrial chain. If the terminal demand in the peak season of "Golden September and Silver October" is fulfilled, the molten iron output is expected to maintain a certain degree of resilience. The market focus will be on the performance of terminal demand and the profit situation of steel mills in the later period.
In terms of inventory, the latest data from Mysteel shows that as of August 28, the total current coke inventory stood at 8.8343 million tons, a decrease of 372,700 tons week-on-week. Among this, the inventory of 230 sampled coking enterprises was 612,200 tons, down 18,900 tons week-on-week; the inventory of 247 steel mills was 6.1508 million tons, down 254,200 tons week-on-week; and the port inventory was 2.0713 million tons, down 99,600 tons week-on-week. All links saw simultaneous destocking, mainly driven by supply contraction. However, the downward transmission of prices has been hindered, which is also the reason for the continuous losses of coking enterprises. If steel mills' profits come under pressure and lead to a slowdown in procurement, disrupting the destocking rhythm, coke prices may face downward pressure.
From the perspective of the industrial chain, the upside of coking price increases largely depends on whether steel mills can pass on costs to downstream sectors, with their upward space constrained by steel mill profits. Driven by consecutive increases in spot coking prices, the basis has widened significantly. If spot price hikes proceed smoothly and the basis narrows gradually in the follow-up, futures prices still have room to rise. If spot prices fail to keep up with the increases, futures prices will face downward pressure after expected overextension.
Overall, the rise in coke futures in August was a price recovery driven by cost support, rather than a concerted rally in the industrial chain boosted by terminal demand. Currently, factors such as cost support, supply contraction, inventory destocking, and spot price hikes are bullish for coke prices, but the widening losses of steel mills and potential negative feedback are creating downward pressure. In the short term, driven by costs, coke will continue to maintain a strong and volatile trend, but steel mill profits will cap the upside of coke prices. In the medium term, whether coke prices can continue to rise depends on the fulfillment of peak-season demand during the "golden September and silver October" period. If peak-season demand is realized, the upside for coke prices will open up again. Otherwise, coke will face negative feedback pressure.
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