Coke: Entering the New Year with Pride

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Since mid-January, the lowest price of the main May contract for coke has risen by more than 200 yuan per ton in total； The average spot price of grade-1 metallurgical coke has dropped by over 400 yuan per ton compared to its peak level at the beginning of January, with significant declines in the spot prices in some cities affected by production restriction policies during the heating season. The divergence in the trends of spot and futures prices reflects respectively the temporary surplus in coking coal supply and the steel mills’ expectations to stock up goods around the end of the heating season. On February 7, some coking plants complied with the requests from steel mills in the Handan area for another round of price cuts, while a few coking enterprises in Xuzhou, Jiangsu, raised their prices by 50 yuan per ton, indicating that spot prices may be approaching a temporary bottom. The author believes that coke futures will play a leading role in guiding spot prices, with spot prices on an upward trend as the Lunar New Year approaches. The judgment is based on the following two points: there is not much excess pressure on coke before the end of the heating season, and the recovery of coke plant operation rates does not equate to a recovery in coke production. Therefore, it is not rigorous to judge the supply and demand situation of coke based on the relative changes in the operating rates of coke plants and blast furnaces. The \"Action Plan for Tackling Air Pollution in the Autumn and Winter of 2017–2018\" (hereinafter referred to as the \"Plan\") stipulates that from October 1, 2017, to March 31, 2018, the time required for coking enterprises to complete their coking processes shall be extended to over 36 hours; for those located in urban areas, this period shall be extended to over 48 hours. The “2+26” cities covered by the Plan belong to Beijing, Tianjin, Hebei, Shanxi, Shandong, and Henan respectively. According to the **Statistics Bureau**, the total coke production in these provinces and regions in the fourth quarter of 2017 was 43.673 million tons, a decrease of 9.771 million tons compared with the same period the previous year. Jiangsu, which has adopted dry quenching equipment for coking, produced 4.043 million tons of coke in the fourth quarter of 2017, a decrease of 2.849 million tons compared to the same period the previous year. In total, the coke production in these provinces and regions during the fourth quarter decreased by 12.62 million tons compared to the same period last year. In the fourth quarter of 2017, the national coke production was 104.346 million tons, a decrease of 12.407 million tons compared with the same period the previous year, which is roughly in line with the total figure mentioned above. This indicates that the decline in coke production in the fourth quarter of 2017 was mainly driven by two policies: the relevant plan and the implementation of dry quenching equipment in the Xuzhou area. If the impact in the first quarter is the same as that in the fourth quarter of 2017, the combined production loss of coke due to policy effects over these two quarters will be 24.814 million tons. According to statistics, the total domestic production of pig iron in the fourth quarter of 2017 was 169.621 million tons, a decrease of 3.836 million tons compared with the same period the previous year. In the fourth quarter of 2017, the total production of pig iron in Beijing, Tianjin, Hebei, Shanxi, Shandong, and Henan was 71.6266 million tons, a decrease of 8.5858 million tons compared to the same period the previous year. In the areas affected by the Plan, the decline in pig iron production was greater than the overall decline in pig iron production across the country; other regions saw a significant increase in production to fill the gap in pig iron supply. If the impact of policies on pig iron production in the first quarter is the same as that in the fourth quarter, and considering that the heating season lasts 1.5 months in the fourth quarter but 2.5 months in the first quarter, it is estimated that pig iron production during the heating season will decrease by 10.229 million tons compared to the same period last year ； The coke ratio for feeding into the furnace is estimated at 500 kg per ton; the demand for coke during the heating season decreased by 5.1145 million tons compared to the same period last year. The decline in demand for coke was smaller than that in supply, resulting in a gap of 19.6995 million tons. As can be seen from the above analysis, the current spot price of coke is continuing to decline, driven by a temporary and localized easing in coke supply during the heating season; however, the overall supply and demand for coke remain tight.