SunSirs: Coke Market: Supply Tightness & Rigid Demand Fuel Short-Term Rally, but Real Estate Weakness Caps Long-Term Outlook

The short - term policy of Shanxi's safety supervision is effective. The pattern of tightened coke coal supply is difficult to reverse. Due to the rigid demand of steel mills, the raw material cost has been lifted. The cycle of coke price increase is not over. In the short term, the coke price is strong, and there is still an expectation of price increase.

In the first and second decades of May, the main - contract price of coking coal was weak and fluctuating due to the impact of loose supply. On May 22, a special gas explosion in Qingyuan, Shanxi triggered a comprehensive safety rectification of coal mines throughout the province. This led to a significant contraction in the supply of coking coal and a rapid rise in raw - material costs, becoming the turning point for the reversal of the coking - coal market. Entering June, the market's long - going sentiment was released, and the operation focus of the main coking - coal contract kept moving up. On the night of June 12, it touched 2,130.5 RMB/ton, leading the black sector. As of June 11, the spot price of coking coal had completed six rounds of price increases. And on June 12, coke plants started the seventh round of price increases, which is expected to be implemented on June 15. The market generally expects there will still be 1 to 2 rounds of price increases.

On the supply side, safety inspections have suppressed the release of coking coal capacity. To date, 137 coking coal mines have been shut down in Shanxi, corresponding to an annual capacity of 158.5 million tons. As of June 10th, only 81 mines have resumed production, with 56 mines, representing a capacity of 61.2 million tons, still shut down. The strict approval process and extended training cycle in the Qingyuan area have resulted in low capacity utilization rates for most mines that have resumed production, and production recovery has not met expectations. According to SMM data, as of now, the capacity utilization rate of 523 sample coking coal mines is 69.6%, and the daily production of washed coal is 674,200 tons, a decrease of 18% compared to before May 22nd. As of last weekend, the mine-end inventory has continued to decline, with the washed coal inventory falling to 17.496 million tons, a weekly decrease of 11.7%.

In addition, it is difficult to make up for the supply gap with imported met coal. From January to April this year, the import of Mongolian coal increased by 68.3% year-on-year, and the port clearance volume has reached a peak, with limited room for further volume increase; Russian coal is constrained by corporate losses and the tight transport capacity in the Far East, and the supply increase is insufficient; although the profit window for Australian coal has opened, the concentrated arrival of ships and goods is concentrated in July and later. The shortage of raw materials has reversed and suppressed the production of coke, and the current daily average production of coke is 11.259 million tons, slightly declining from before May 22nd, combined with the fact that the price increase of met coal is greater than that of coke, the coke-making profit has been passively compressed, and the intention to reduce production in the later period may further increase, and there is a contraction expectation in the supply of coke.

On the demand side, the steel mills' essential demand for coking coal remains firm, providing solid support for coking coal prices. As of June 12th, the daily iron water production of 247 sample steel mills across the country has been at a high level of 2.4086 million tons, and the steel mills' demand for raw material restocking is stable. At the same time, the capacity utilization rate of independent coking plants nationwide has remained at a high level within the year, only slightly passively declining due to a brief shortage of coking coal, and the high operating pattern of the industry chain continues, supporting multiple rounds of price increases for coking coal spot transactions to be implemented.

In terms of inventory, the overall inventory has increased slightly. As of June 12th, the inventory of coke in coking plants and steel mills has increased slightly, while the port inventory has decreased slightly. The total coke inventory has only increased slightly year-on-year. The increase in inventory has limited the extent of the price increase to some extent, but under the logic of tight raw materials and rigid demand, the inventory issue has not yet dominated the market.

Overall analysis, the short-term impact of Shanxi's safety supervision policy is significant, the contraction pattern of coke coal supply is difficult to reverse, the raw material cost is rising due to the rigid demand of steel mills, the cycle of coke price increase is not over, and the short-term coke price is strong. There is still an expectation of price increase in the future. However, the terminal real estate data has been weak, the construction and new start area has declined, the steel demand is weak and it is difficult to improve fundamentally, and the high production rate of steel mills is not sustainable, which limits the coke price trend. It is expected that the coke market will be in a "short-term strong, medium and long-term pressure" differentiated situation.

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