SunSirs: Limited Upside for Coke Prices in November Following Strong October Performance

At present, the cost of coking coal into the furnace has increased significantly, and some coking plants are still losses after the second round of price increases, and the enthusiasm for production is generally average.

In October, the supply of coking coal tightened, prices were strong, downstream steel mills increased their demand for inventory, and coking coal prices were strong. In the fourth quarter, coal prices are likely to rise rather than fall, and the later part of the coking coal price will support the cost side of coking coal, but as steel mills enter losses, it will be more difficult for coking coal prices to continue to rise in November, and coking coal prices may be under pressure to decline after the middle of the month.

Specifically, domestic coke prices have been increased twice in October, and the mainstream market price has increased by 100-110 RMB/ton cumulatively. Around the National Day, steel mills have a demand for inventory and stockpiling, and the purchase of coke is active, with many cases of urging delivery. On October 27, the second round of price increase for coke was fully implemented, and the ex-factory price of Shanxi's quasi-first-class dry coke was executed at 1575-1645 RMB/ton, an increase of 7.33% from the average price at the end of September.

The main reasons for the strong increase in coking coal prices in October are the rise in raw material coking coal prices and the good support of downstream demand, the specific analysis is as follows:

Firstly, the supply of coking coal is tightening, prices are strong, and costs are increasing significantly, which provides support for the bottom of coking coal prices. During the National Day holiday, some coal mines were closed and on holiday, and before and after the holiday, downstream purchasing was active. The sales of coking coal at the mine mouth were good. In addition, the coal mines were inspected for overproduction and environmental protection. After the holiday, the production of coking coal was limited, and the expectation of tightening supply in the fourth quarter increased. The price at the mine mouth was strong, and the cost side provided strong support, which supported the rise in coking coal prices. As of October 27, the price of S<1 coking coal in Lvliang, Shanxi, closed at 1550 RMB/ton, up 150 RMB/ton from the low price in September, up 60 RMB/ton in October, and the cost of coal for most coking plants in Shanxi increased by 80 RMB/ton since October, which supported the rise in coking coal prices.

Second, coking plants are operating at a loss, and there is an increase in maintenance and production cuts, leading to a slight tightening of supply. According to Zhongchuang Information, at present, most coking plants are below the breakeven point, the loss of top-loaded coking plants is increasing, and the production intention of some coking plants has decreased, leading to an increase in maintenance and production cuts. In addition, coking plants in the Tangshan area of Hebei Province are implementing environmental production restrictions, with most coking plants reducing production by 20%-30%, and it is expected to be implemented until the end of October. As of October 23, the weekly production capacity of major independent coking plants in China was 75.33%, a decrease of 1.71 percentage points from the September high point, with coking ovens in Gansu, Shanxi, and Shandong regions being inspected, and the production of coking plants has maintained a slight decline, leading to a slight tightening of market supply.

Third, the downstream steel mills maintain a high level of blast furnace operation, with demand supported by essential needs and inventory building before and after the National Day.

As of October 23rd, the rate of blast furnace operation in the Tangshan area, which is tracked by Zhongchuang Information, closed at 90.24%, an increase of 1.22 percentage points compared to the previous week, reaching the highest level of the year, and the demand for coke is supported. Before the National Day holiday, most steel mills had a demand for stockpiling, and the market purchasing was active, while the production of coke plants was stable and gradually decreasing, the supply and demand was tightened, and the coke price was supported to strengthen. After the holiday, the steel mills' coke inventory dropped significantly, and there was a release of the demand for stockpiling, but due to the increase in the price of coke coal and the contraction of profits, the coke plants' production intention was not high, and the situation of maintenance and production reduction increased, and the steel mills' stockpiling effect was not ideal. As of October 23rd, the average number of days that the 45 mainstream steel mills tracked by Zhongchuang Information can use their coke inventory was 7.18 days, a slight decrease of 0.4 days from the beginning of October. Among them, the number of days for the mainstream steel mills in Hebei to store coke was reduced to 6.05 days, and the number of days for a mainstream steel mill in Shandong to store coke was reduced to about 320,000 tons, which was the lowest level of the year. The steel mills' coke inventory was low, most of the purchasing was active, and there were many cases of rush orders in the coke market, which supported the price increase.

Looking at the market in the future, although the cost side of coking coal is supported and the overall price of coking coal is strong, steel mills are facing losses, and it is expected that the price of coking coal will be difficult to continue to rise in November.

At present, the cost of coking coal into the furnace has increased significantly, and some coking plants are still losses after the second round of price increases, and the enthusiasm for production is generally average. Looking forward to November, on the cost side, the seasonal demand for coal will increase, and there will be a strong expectation of tightening supply without a significant increase in coking coal production, which will continue to support the price of coking coal; on the demand side, the current domestic steel demand is weak, and the price is under pressure, but the blast furnace start-up rate is still high, and the steel mill is making a small profit, the iron water production decline is not obvious, and it is expected that the downstream demand for coking coal will still be supported before the middle of November, and the price of coking coal will maintain a stable and strong trend. After the middle of the month, as the seasonal demand for domestic steel decreases, the pressure of steel sales increases, the risk of terminal negative feedback increases, the iron water production decline or accelerates, the demand for coking coal weakens, and the price may be under pressure to decline.

Overall, it is expected that the domestic coke price in November will be strong at first and then weak, with the turning point depending on the timing of the downstream steel mills' blast furnace overhaul and the significant decline in iron water production, which is expected to be after the midąd of November.

If you have any inquiries or purchasing needs, please feel free to contact SunSirs with support@sunsirs.com.