Positioning coal challenges China’s competition to maintain control over commodity costs

The price of key raw materials for China’s broad steel industry has risen, even as Beijing has tried to control price commodity loopholes.

The high-quality coke coal delivered to China has risen by more than $ 300 a tonne for the first time since 2017, up nearly 150 percent since October, dragging steel mills rather than international rivals and squeezing supplies.

Rising prices have underscored China’s difficulties in trying to cool its red commodity markets, which it says are a key risk to its economy’s recovery and foreign policy targets.

China is relatively self-sufficient in coking coal, unlike most other products, as domestic mines supply about 80% of its needs. However, the size of the steel industry imports about 65m tonnes of steel components per year.

In total, a large part of that number came from Australia. Then, in October, Beijing put it on unofficial ban on coal imports from the country, due to the diplomatic queue with Canberra at the origin of the coronavirus crisis.

“The removal of Australia from the photo last year significantly reduced the import of coking coal to China and the numbers reflect that,” said Julien Hall, S&P Global Platts ’director of Asian metals prices.

Between January and May this year, China imported 18.2 tons of coke coal from all destinations, less than 31.7 million tons at a time in 2020, according to S&PEN.

At the same time, the production of coke coal has fallen, driven by safety and environmental inspections, which rose on July 1 when the Communist Party turned 100 years old.

“When 30 to 40 percent of production is confined to major production sites in Shanxi and the Mongolian border is closed, coking coal prices in China continue to rise,” said BMO Capital Markets analyst Colin Hamilton. Mongolia is another major supplier of coking coal to China.

So far there has been little sign that coke coal prices have a narrow focus on Beijing politicians. However, that could change as prices continue to rise.

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Rising iron ore prices – another key component of steelmaking – have received the most attention. Earlier this week, China’s main economic planning agency, the National Development and Reform Commission, he said he would investigate “Malicious speculation” and “harsh punishment” for “iron speculation” on domestic iron ore trading platforms.

Chinese coal coke imports have been traded more than three times for more than $ 300 a tonne. The last one was in 2017, after a cyclone disrupted supply in Australia.

“Given the price trend, it would not be reasonable to assume that Chinese steelmakers would be reassured by the opening of the import market,” Hall said.

Analysts say Australia’s import ban is a key reason why Chinese steelmakers are paying so much more than their international opponents for locating coal. The price of Indian imports, including the cost of goods, is about $ 205 per tonne, while that of China is nearly $ 100 higher, according to S&P Global Platts.

However, the boycott of Australian supplies has benefited North American coke coal producers, as they have dramatically increased sales to China.

In May, 700,000 tons were shipped to China, less than 1 ton in the same month a year earlier. Miners in Indonesia, Colombia and Mozambique have also increased their exports to China.