China’s steel output cuts could intensify coking coal’s plunge
China’s declining steel demand is sweeping through related markets, with prices of the coking coal and coke used in blast furnaces plunging to their lowest since 2016.
Steel mills are expected to curtail production this year to cope with the drop in consumption. The protracted collapse in the property sector remains the biggest drag, while exports that have helped soak up the domestic surplus are likely to recede in the face of mounting trade barriers.
The glut has hammered prices across the ferrous complex. Steel rebar traded in Shanghai and used in construction fell to near eight-year lows this week. Dalian iron ore, which is also heavily keyed to demand from steelmakers, has dropped 10% this year.
The coal-side of the equation is further hampered by swollen supply, and additional declines in price are likely, Chao Yuke, an analyst at the China Coal Transportation and Distribution Association, said at a briefing on Wednesday.
Higher-grade coking coal is much less abundant in China compared to the thermal coal used in power plants. But miners are digging up record amounts of the fuel generally, while imports are weighted to the steelmaking variety. That’s allowed the factories that convert coking coal to coke to maintain output.
In the major coal hub of Shanxi, those factories have kept operating at 83% of capacity over the past week and show no sign of taking action to rein in the oversupply, according to data from the association.
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