China's coking coal prices at 2-year low, downside pressure still looms

China's coking coal prices have dropped to their lowest in almost two years. Prices dropped on prolonged lack of buying strength from coking plants. Moreover, downside pressure remains amid the continued weak transaction and looming coke price cuts.

On May 4, the CCI index for Shanxi low-sulfur primary coking coal stood at 1,738 yuan/t, ex-washplant with VAT, down by 122 yuan/t compared to pre-holiday level, notching a new low since May 6, 2021.

The index for Shanxi high-sulfur primary coking coal was at 1,399 yuan/t, also the lowest since May 12, 2021.

Prices of low-sulfur primary coking coal (S 1.0%, A 10.5%, G 80-85) at some mines in Luliang of Shanxi further dropped by 100 yuan/t to 1,600 yuan/t on May 4, ex-washplant with VAT and in cash, bringing the total reduction to 850 yuan/t from a high in March.

Over reduction of prices at several mines indeed spurred some buying interests, yet the overall sales volume was not significantly higher amid a continued lack of demand, Sxcoal understood from some miners.

Settlement levels of some online coking coal auctions continued to dip, yet not all of the reduction could result in higher volume of sales.

"Our mine put 10,000 tonnes of low-sulfur fat coal (A 0.5%, A 14%, VM 25-30, G 90) for auction at the starting price of 1,500 yuan/t, but eventually abandoned it due to thick prudent sentiment among coke firms," said an official from a Liulin-based mine in Shanxi.

The overall coking coal market sentiment remained bearish among participants surveyed by Sxcoal after the holiday, with the growing likelihood of a sixth round of coke price cuts.

Coke inventories further accumulated at production areas during the past week, and the near-term trend would remain upward given a decline in daily consumption at steel mills after putting more blast furnaces into maintenance.

Mills' on-hand coke stocks mostly stayed at medium levels and they continued to adopt a low-inventory strategy, meaning their buying appetite for coke after the holiday is still less likely to significantly increase, even though their inventories slightly dropped by the slowed transportation during the holiday.

Sxcoal learnt that some steelmakers in Hebei and Shandong, two major steel-producing provinces in China, planned to cut coke purchase prices by 100 yuan/t on May 5, as part of the effort to improve their profit margins that were notably squeezed by the continued decline in steel products prices.

The futures market extended a slump on May 4. The most-traded coking coal futures on the Dalian Commodity Exchange (DCE) ended the daytime session at 1,325.5 yuan/t, tumbling by 4.26%. Meanwhile, the most-active coke contracts on the bourse were down by 2.47% to 2,094.0 yuan/t.