Chinese coking coal supply faces year-end squeeze
Pre-winter safety checks at Chinese coal mines have boosted domestic coking coal prices over the past month, with more supply disruptions possible after a fatal accident at a mine in Shandong province prompted the inspections to be widened.
Prices for Liulin low-sulphur premium hard coking coal have risen by as much as 80 yuan/t ($11.50/t) over the past two months to Yn1,630/t ($235/t). This is a considerable increase given low-sulphur coking coal prices are often set under long-term contracts to ensure stability of supply.
The US-China trade war has prompted Beijing to inject more stimulus and prioritise economic growth over environmental protection. But the government has maintained its focus on mine safety.
“Safety at the mines and controlling mining pollution is still a priority for the Chinese government, especially in the run-up to the winter season,” a Chinese trader said. “Safety checks at the mines will continue to reduce production levels, and this means coking coal prices in China should remain strong.”
A rock burst at a mine in Yuncheng county in Shandong over the past weekend prompted the local government to shut 41 other coal mines in the surrounding region to carry out safety checks.
“Mines in Shandong produce mainly semi-hard and semi-soft grades of coking coal, so the safety checks will affect the supply of mills and coke plants based in Shandong. It should not have a direct effect on the wider coking coal market,” a Shanghai-based trader said.
But the actual impact is still unclear as winter production limits for coke plants and steel mills in the region have not been announced, the trader said.
And the accident has contributed to a growing perception of supply tightness in China. This has encouraged some Chinese traders to restock with Australian cargoes, and other traders to hold back on liquidating their remaining cargoes. Most traders expect Chinese steel producers to return to the seaborne market once their alternative sources dry up.
“Chinese mills are still unwilling to buy at the moment, but if they are left with no choice after some time they will just buy regardless of the price,” another Chinese trader said.
Source: ARGUS MEDIA