China Coke Prices Rise

Chinese coke producers have hiked prices for June due to soaring coking coal prices, adding pressure to steel mills already struggling with surging iron ore prices, traders and analysts have said.

Many producers in Shanxi, China's top coal and coke producing province, raised coke prices by 300 yuan a tonne. Price of first-grade metallurgic coke reached around 2,700 yuan ($389.40) a tonne in the province up from less than 1,000 yuan in January, traders and local media said.

The price increases come at a time when Beijing is urging steel mills to restrain price increases for fear of fuelling inflation, especially in the aftermath of the Sichuan earthquake that is expected to raise steel demand for reconstruction.

"From coke production to transportation, every link is problematic," said a Shanxi-based trader.

Many small and medium-sized coke producers are cutting production, as there is not enough coking coal feed into their coke ovens and the increasingly tougher environmental regulations are putting pressures on them, traders said and more than half of the coking coal resource is controlled by small mines, many of which have been asked by the government to close due to safety concerns.

"Transportation problem is worsening now, as the government wants to ensure thermal coal supply and is shifting focus to transportation of thermal coal," said the Shanxi-based trader.

With nearly 1 percent of China's power generating capacity forced to close down due to coal shortages, Beijing has called on mines and those in charge of transport to ensure thermal coal supply to power plants.

In the meanwhile, China's largest steelmaker Baoshan Iron and Steel Co (or Baosteel), has postponed publication of its third-quarter prices, possibly at Beijing's request.

Analysts said steel mills may change manufacturing process to cut coke input, but it would take years.

"Given the predominance of small mine production, coking coal supply is arguably even less stable than thermal," a recent Macquarie research note quoted David Fang of China Coal Transportation and Sales Association as saying.

The coal sector has been dogged by persistent transport bottlenecks, helping to push domestic coal prices to record highs.

Traders who purchased coke in the past winter are hesitant to sell their stocks, expecting prices to continue to climb, contributing to the price hike of coke, the Shanxi-based trader said.

"It won't surprise me if coke price hits 5,000 yuan," said Henry Liu, an analyst at Macquarie Bank. "I don't see how the demand for coke or coking coal can be satisfied."

The higher prices on the international market makes imports an unattractive option. ($1=6.933 Yuan)

Source: Reuters