Coke Price Increase Has Room in the Near Term, but the Risk of Price Reduction at the End of the Month is Also Increasing
Jul 03, 2024
From early May to mid-June, the coke market overall showed a weak operation trend. Coke prices experienced two significant adjustments, on May 21st and 12th, by 100/110 RMB/ton and 50/55 RMB/ton respectively. These adjustments had a certain impact on market sentiment, but the sentiment gradually recovered, and companies began to see the basis for coke price increases. At the same time, under the background of high demand and profit recovery, steel mills' sensitivity to coke prices has decreased, providing an opportunity for coke enterprises to raise prices. On June 21st, coke enterprises attempted to increase by 50/55 RMB/ton, and after full market competition, this round of price increase was successfully implemented on June 26th, marking the beginning of market sentiment recovery and price repair. Currently, the market generally believes that there is no risk of price reduction for coke, and some companies still have the idea of raising prices again, showing that there is further room for price increase in coke.
The main driving force for the rise in coke prices comes from the high pig iron output of steel mills and the relatively low coke inventory. On June 28th, Mysteel research data showed that the daily average pig iron output of 247 steel mills nationwide reached 2.3944 million tons, and according to the iron-to-coke ratio of 0.43 tons, the actual coke demand is about 1.0838 million tons. The total output of independent coke enterprises and steel mill coke enterprises nationwide is about 1.1413 million tons, of which the daily output of independent coke enterprises is 671,800 tons, and the daily output of steel mill coking coke is 469,500 tons. Considering the coke volume for overseas exports and some to the ferroalloy industry, the actual coke consumption towards the blast furnace may be less than 1.0842 million tons.
Although there may be some calculation errors in the data, the direction of coke inventory changes within the industry chain also verifies the view that there is a difference in supply and demand. It can be explained that steel mills actively reduced coke factory inventory to transfer cost pressure and reduce coke purchase prices, but the continuous industry de-stocking is also a strong evidence of tight coke supply. The low inventory status of steel mills not only increases their purchase demand for coke but also increases their tolerance for coke price increases.
Entering July, the coke market still has the support of high pig iron output. And currently, the coke inventory in steel mills has not been effectively replenished, generally still in a low inventory state, and some steel mills' coke is even below the safety inventory level. This makes steel mills more active in purchasing coke, providing momentum for the price increase of coke.
Under the high demand of steel mills, the corresponding inventory is indeed low, but it is also necessary to pay attention to the fact that in the context of the low inventory strategy implemented by steel mills in recent years, the expectation for the overall restocking of steel mills in the later period is limited. Therefore, although the current coke demand is high, steel mills will be more cautious and rational when restocking. In addition, as the trend of pig iron output peaking and falling appears, coke demand will gradually weaken, and the support for prices will also gradually weaken. In the early July, there is no risk of price reduction for coke under the high demand support, and coke enterprises can continue to try to raise prices.
However, the low profits of steel mills will balance the raw materials, and the negative impact of demand decline also needs to be considered. The resistance to the rise is gradually increasing. If the market does not improve after the middle of the month, steel mills are expected to make another reduction. It is expected that coke enterprises will have a price increase action at the beginning of July, which is difficult to land, and even if it is landed, it will most likely promote the price reduction behavior of steel mills in advance. Referring to the current profits of steel mills and the general market view, there may be about two rounds of price reduction pressures in the late July.
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