Coke challenges China’s bid to control commodity costs

The price of a key raw material for China’s huge steel industry has soared even as Beijing tries to rein in commodity prices.

Quality coke delivered to China soared above $300 a ton for the first time since 2017, up nearly 150 percent since October, due to supply pressures that have left steel mills scrambling and paying a much higher price than international competitors.

The price hike underscores China’s difficulties in trying to cool hot commodity markets, which it has identified as a major risk to its economic recovery, and its foreign policy objectives.

China is relatively self-sufficient in coke, unlike most other commodities, with domestic mines providing about 80 percent of its needs. But the size of its steel industry means that it still imports about 65 million tons annually of steelmaking components.

Much of that total came from Australia. Then in October, Beijing put Unofficial ban on coal imports from the country due to a diplomatic row with Canberra over the origins of the coronavirus crisis.

“Removing Australia from the picture last year has led to a significant reduction in coke imports into China and the numbers reflect that,” said Julian Hall, Asia director of metal pricing at S&P Global Platts.

Between January and May this year, China imported 18.2 tons of coke from all destinations, down from 31.7 million tons in the same period in 2020, according to S&P.

At the same time, domestic coke production has declined, under pressure from safety and environmental inspections, which increased before the 100th anniversary of the founding of the Communist Party on July 1.

“With 30 to 40 percent of production restricted in major Shanxi production centers, and the Mongolian borders closed, domestic coke prices in China continue to rise,” said Colin Hamilton, analyst at BMO Capital Markets. Mongolia is another major supplier of coke to China.

So far, there are little indications that rising coke prices are the focus of policy makers in Beijing. However, that could change as prices continue to rise.

Rising prices for iron ore – another major component of the steel industry – have attracted most of the attention. Earlier this week, China’s largest economic planning agency, the National Development and Reform Commission, announced, He said it will “Malicious speculation” on domestic iron ore trading platforms and “severely punish” any irregularities.

There have only been three occasions when Chinese coke imports have traded above $300 per ton. The most recent was in 2017 after a cyclone disrupted Australian supplies.

“Given the price trend, it wouldn’t be unreasonable to assume that Chinese steelmakers would be relieved to see the import market open,” said Hall.

Analysts said the Australian import ban is the main reason Chinese steelmakers are paying much more for coke than international competitors. India’s import price including shipping cost is around $205 per ton, while China’s is about $100 higher, according to S&P Global Platts.

However, the Australian supply boycott has been a boon to North American coke producers, dramatically increasing sales to China.

In May it shipped 700,000 tons to China, up from just one ton in the same month a year earlier. Miners in Indonesia, Colombia and Mozambique also increased their exports to China.

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