Supply exceeds demand; coking coal prices still have room to fall

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Surplus supply: Further declines in coking coal prices are possible Author: Wang Shengxian, Su Wanming Source: Xinhua08.com Update date: 2012-08-24 With declining demand from the steel industry, the supply and demand situation in the coking coal sector remains one of surplus supply. At the \"2012 China Coal and Coking Coal Industry Supply and Demand Forum\" held in Qingdao on the 23rd, industry experts were generally pessimistic about the future prices of coal and coking coal, believing that there is still room for further declines. Feng Guoqing, general manager of Shougang Supply Company, believes that in 2011, a balance was achieved for the supply and demand of coking coal in China for the first time; China’s coking coal production capacity was sufficient to support the country’s steel production capacity of 700 million tons. Looking at the situation from last year to the present, the import volumes of coking coal in Australia, Canada, and Mongolia have been low. Despite these significant reductions in imports, domestic steel production has continued to rise, indicating that the supply and demand dynamics for coking coal in China have undergone fundamental changes. Feng Guoqing pointed out that from the 11th Five-Year Plan period to last year, domestic coal companies invested a total of nearly 2 trillion yuan in coking coal. The capacity that was invested began to be utilized gradually last year. The true period of large-scale release will begin next year and continue over the next 3 to 5 years; in other words, in addition to meeting the demand for producing 700 million tons of steel, there is still additional production capacity in domestic coking coal that is ready to be utilized. At the same time, foreign coking coal is more competitive than domestic coal, and large-scale imports in the future will impact the domestic market. Feng Guoqing said that Australian coking coal was selling for less than 50 dollars in 2003; during this latest period its price reached a maximum of 350 dollars, and it is still around 180 dollars at present. It can be seen that there is still significant room for cost competition in foreign coking coal. In particular, in recent years, new resources represented by coking coal from Mongolia have emerged. Last year, Mongolian coking coal accounted for half of the 44.66 million tons of coking coal imported into the country. Feng Guoqing said, “Currently, the price of coking coal from a coal mine across the border at the Mongolian coking coal port is 700 yuan per ton, excluding taxes. When taking value-added tax and other factors into account, the best option at present is Mongolian Energy’s coking coal at 1310 yuan per ton.” ”Also, Mozambique’s coking coal costs around 60 dollars per ton, and its production capacity is set to reach 10 million tons in the near future. Therefore, with a large amount of raw coal coming in from abroad, unless steel production experiences rapid growth, it will take a considerable amount of time to overcome the situation of oversupply in the coking coal market. The coal market still has room for price reductions in the future; a drop in the price of coking coal will inevitably lead to lower prices for coke. Liu Tienu, deputy general manager of Qingdao Iron and Steel Group, said that in July and August, the average price of steel products dropped by around 450 yuan. There will be another drop in September, but the scale of the reduction will be smaller. The decline in prices of coal and coke, especially coal, tends to be slower than that of steel; therefore, coal and coke will see further price drops in the following one or two months. Zhang Chunmao, head of the supply department at Shandong Iron and Steel (Zhangdian Iron and Steel), also believes that coal prices have not yet reached their bottom. With steel companies generally reducing production, there is indeed room for price cuts, but these will not be as significant as the continuous sharp drops seen in the first half of the year.