Capacity-cutting moves in steel may hurt
Domestic prices of coking coal and coke, crucial raw materials for the steel sector, will continue rising because of shortages, experts told the Global Times on Monday.
But experts also warned that with the country apparently poised to take more measures to combat steel overcapacity, steel mills' demand for these raw materials might fall.
From October 11 to 20, the price of coking coal, a key raw material in steel manufacturing, was up 5.2 percent to 893.8 yuan (1.96) a ton compared with the previous 10 days, the National Bureau of Statistics (NBS) said on Monday.
The price of coke was up 3.9 percent to 1,481.5 yuan per ton during the same period, also compared with the previous 10 days, NBS said.
"Several coking plants said their supplies of coking coal and coke are quite limited," Jiang Haihui, a senior analyst at Shanghai-based SHZQ Futures, told the Global Times on Monday.
"The supply shortage mainly leads to recent price hikes," Jiang said, noting that shortages are likely to persist, meaning prices will rise further.
Domestic coal mines, except those that have specific safety requirements, can only produce at most 276 days a year, a limit that aims to cut coal output and maintain the sound development of the coal industry, according to a statement posted on the website of the National Development and Reform Commission in March. Previously, coal mines could produce 330 days per year.
In the first nine months of 2016, output of China's coking coal sector was down 1.6 percent at 331.74 million tons, according to data released by the NBS on October 19.
"Domestic steelmakers' demand for coking coal and coke is still increasing. They don't want to reduce or stop output as they want to maintain a stable market share for the long term," Wang Guoqing, research director at Beijing Lange Steel Information Research Center, told the Global Times on Monday.
From October 17 to Friday, among the 100 small and medium-sized steelmakers tracked by Beijing Lange, 89.65 percent were in operation.
The overall market outlook remains positive in the near term as steelmakers still maintain high production levels, so they will have a strong demand for coking coal and coke, said Wang, noting that coking plants had benefited from price hikes recently.
However, for the longer term, China's drive to cut steel overcapacity means the demand for raw materials might decline, which may drive coking coal and coke prices down, Wang said.