As a bulk raw material coke is pinched by the rampant growth and squeezes from up and downstream enterprises which become domestic coke market bottleneck. As per National Bureau of Statistics, China coke output from January to June this year touches 210.37 million tonnes reflecting an increase of 11.7%YoY higher than the rise in steel over the same period.
Mr Huang Jingan President of China Coking Industry Association estimates that China''s coke output this year is projected to exceed 400 million tonnes at about 420 million tonnes to 450 million tonnes.
1. Converging Attack
Mr Mu Wenxin an industry analyst believes that the spike of crude steel leads to coke output hike. China crude steel production increases by 9.6%YoY in H1 boosting the demand for coke. Although coking plants in some regions state to curtail production, the restraint is limited due to the costs and products recycling.
An executive from a large state owned iron and steel coking company said that coke price is CNY 1,800 per tonne while the cost of coking coal poses as high as CNY 1,500 per tonne. Coupled with the logistics and other factors, profits of coking products can only offset the productive costs. Differing from coking plants belongs to steel mills and independent coking enterprises no longer withstand severe market competition.
With the backdrop of peaking resources, steel mills and independent coking plants are stuck on the bottleneck. Steel market moves downward in Q1 resulting a CNY 2 per tonne to CNY 3 per tonne fall in coking coal whereas coke suffers a drastic decline of CNY 30 per tonne to CNY 50 per tonne. What's more, iron ore and coking coal accelerate monopoly which makes the increased prices difficult to come down.
On the downstream side, steel mills always squeeze profits from coke if steel prices signal a dull trend. For it is hard to break the monopoly of international iron ore and coking enterprises are too scattered, the coke industry has a long way to end the impasse.
2. Restructuring
Steel mills and independent coking enterprises try to tackle the dilemma through restructuring from a few years ago. One of the methods they adopt is deep processing. Power and methanol plants are built on the basis of waste heat or gas so as to make full use of resources despite coke-coal price inversion.
3. Marginal Profit
However, the overheated investment in coal chemical industry has caused overcapacity in some products, which is slapped by restrictions.
Ministry of Industry and Information Technology issued that 19.755 million tonnes of capacity is to be eliminated this year which is a big push towards coke industry. However, large coking projects are slated to launch during 12th Five Year Plan.
Insiders pointed out that in the year 2011, costly coke production will not improve due to the existence of Energy Saving and Emission Reduction policy and intense power transport. Besides, market risks and blackout in some regions also drive coking market hard to make a breakthrough. Should steel output slowdown continue, marginal profit in coking sector will retain as well.