SMM, December 17:
The transmission of favourable macro front to end-use demand still requires some time to materialize. After the market sentiment towards macro benefits faded, the trading logic of coking coal and coke futures returned to fundamentals. Spot coke supply remained basically stable. However, with a significant increase in blast furnace maintenance at steel mills recently, the market has strong expectations for a decline in pig iron production at steel mills. It is expected that steel mills' demand for coke may decrease accordingly, leading coke futures on December 17 to continue the downward trend of the previous two trading days, falling further. As of the close of the daytime session on December 17, coke futures extended the previous two days' decline, down 1.6%, closing at 1,789 yuan/mt. As for coking coal futures, they rebounded during the daytime session on December 17, ultimately closing up 0.84% at 1,147 yuan/mt.
》Click to View SMM Futures Data Dashboard
Coke Spot Prices Have Fallen Over 30% This Year
》Click to View SMM Steel Channel Coal and Coke Prices
》Subscribe to View SMM Historical Price Trends for Metals
From the spot market perspective: On December 17, the nationwide average price of SMM Grade 1 Metallurgical Coke (dry quenching) was 2,010 yuan/mt, unchanged from the previous trading day. As the year-end approaches, reviewing the historical price trends of SMM Grade 1 Metallurgical Coke (dry quenching) this year shows that compared to the average price of 2,890 yuan/mt on December 29, 2023, the average price has dropped by 880 yuan/mt this year, a decline of 30.45%.
Coking coal futures have recently hovered near a multi-year low of 1,100 yuan/mt. In the absence of significant bearish factors, the 1,100 yuan/mt level provides strong bottom support. According to SMM, transactions in the spot market for both coking coal and coke have remained generally stable recently. For coking coal: On the supply side, coal mine production is stable, and the overall supply of coking coal remains steady. On the demand side, although some downstream coke enterprises have started pre-holiday restocking, the overall pace is relatively slow, with limited demand growth. The fundamentals of coking coal continue to fluctuate downward. However, considering the impact of recent favourable macro factors and the fact that coking coal prices are already at the bottom, coking coal prices are expected to remain stable in the short term. For coke: On the supply side, coke enterprises' profitability is generally at the break-even point, so there is little motivation for production cuts. However, in some regions, environmental protection-driven production restrictions have slightly reduced the operating rate of coke enterprises. On the demand side, due to the dual impact of the off-season for steel and winter environmental protection-driven production restrictions, blast furnace maintenance at steel mills has significantly increased recently, with strong expectations for a decline in pig iron production at steel mills. Consequently, steel mills' demand for coke may decrease accordingly. Overall, the fundamentals of coke remain relatively loose. However, considering the expected pre-holiday restocking demand from steel mills and the gradual stabilization of coke costs, coke prices are expected to remain stable in the short term.
In summary, for the outlook of the spot market for coking coal and coke, both are expected to remain stable in the short term. In the medium and long-term, attention should be paid to changes in pig iron production caused by the intensity of steel mill maintenance and production cuts.
Institutional Comments
Xinhu Futures stated: From a fundamental perspective, the operating rate of coking coal mines has slightly declined. Subsequently, with the completion of annual plans in some provinces and cities and the restrictions from autumn and winter environmental protection factors, there is a seasonal reduction expectation on the supply side. On the demand side, downstream purchasing sentiment has improved, and winter stockpiling has increased MoM. However, overall supply still exceeds demand, and spot prices remain weak without forming a price support. In terms of inventory, imported coal inventory has started to decrease, while downstream steel mill inventory has increased, leading to an overall inventory buildup. On the futures market, the supply and demand of coking coal remain loose. Whether prices can stabilize later this month mainly depends on whether seasonal production restrictions occur on the supply side. Downstream winter stockpiling is ongoing, but the overall situation remains one of oversupply, with no price stabilization yet. The most-traded contract has rolled over to the May contract. For coke, it mainly follows changes in the steel sector. The fundamentals are weakly balanced, with stable supply and a slight decline in operating rates during the week. After the fourth round of price cuts, most coke enterprises' profits have returned to the break-even point, and the price game between coke and steel continues. In terms of inventory, port inventory is decreasing, and steel mills' winter stockpiling inventory days are around 12 days, slightly higher than the same period in previous years. Due to the earlier Chinese New Year this year, coke winter stockpiling may end earlier in early January. Regarding pig iron, last week's daily average production was 2.3247 million mt, down 1,400 mt WoW. With increased year-end maintenance at steel mills, there is a strong expectation for pig iron production to peak and pull back, leading to a decline in demand. Overall, coke supply and demand are both decreasing. Downstream steel mills are in the process of winter stockpiling, with inventory shifting from upstream to downstream. Short-term imbalances are not significant, and futures prices are slightly higher than spot prices.
Southwest Futures commented: The impact of macro events has temporarily subsided, and the market has returned to being dominated by industrial logic. From an industrial logic perspective, the spot market for coking coal and coke remains in an oversupply situation. For coking coal, coal mines in major production areas are generally maintaining normal production, with relatively stable supply. Market participants are mostly adopting a wait-and-see approach, while downstream steel and coke enterprises continue to purchase raw coal as needed. Coal mine sales are sluggish, with many online auctions failing, and the market overall is fluctuating downward. For imported Mongolian coal, inventory in the port supervision area remains high, and traders' sentiment is weak, leading to further slight price reductions for Mongolian coal. For coke, supply is currently relatively stable, with inventory buildup continuing in the market. Demand levels have continued to decline MoM, with nationwide daily pig iron production at around 2.33 million mt. Overall, coke supply and demand remain loose, coupled with weak cost support from raw materials. Coke spot prices are in a downward cycle. From a technical perspective, coking coal and coke futures continue to show weakness. It should be noted that unexpected factors may have a significant impact on coal and coke prices. Investors are advised to manage their positions carefully when participating in coal and coke futures. Strategically, investors can focus on low-level buying opportunities and take profits promptly during rebounds, while paying attention to position management.