Despite Beijing’s attempts to control runaway commodity prices, the price of a key raw material for China’s huge steel manufacturing industry has soared.
Due to tight supply, steel mills are scrambling to pay much higher prices than international competitors. Therefore, the high-quality coking coal shipped to China has risen to more than US$300 per ton for the first time since 2017, an increase of nearly 150% since October.
The price surge has highlighted the difficulties China is facing in cooling the hot commodity market, which China has seen as a major risk to economic recovery and foreign policy goals.
Unlike most other commodities, China is relatively self-sufficient in coking coal, with domestic coal mines supplying approximately 80% of its demand. But the scale of its steel industry means that it still needs to import about 65 million tons of steelmaking raw materials every year.
A large part of this used to come from Australia.Then in October, Beijing resettled Unofficial coal import ban Because of a diplomatic dispute with Canberra on the origin of the coronavirus crisis.
Julian Hall, head of pricing for Asian Metals at Standard & Poor’s Global Platts Energy Information, said: “The removal of Australia from the picture last year significantly reduced imports of coking coal from China, and the figures reflect this.”
Standard & Poor’s data shows that from January to May this year, China imported 182 tons of coking coal from all destinations, down from 31.7 million tons in the same period in 2020.
At the same time, domestic coking coal production has fallen, and under pressure from safety and environmental inspections, it will increase before the 100th anniversary of the founding of the Communist Party on July 1.
Colin Hamilton, an analyst at BMO Capital Markets, said: “Due to the 30% to 40% output of Shanxi’s main production centers are restricted and Mongolia’s border is closed, China’s domestic coking coal prices continue to rise.” Mongolia is another major supplier of coking coal in China. .
So far, there are few signs that the soaring coking coal price has become the focus of close attention of Beijing’s policy makers. However, as prices continue to rise, this situation may change.
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Rising iron ore prices-another key steelmaking raw material-have attracted most of the attention. Earlier this week, the National Development and Reform Commission, China’s top economic planning agency, Said it would investigate “Malicious hype” on domestic iron ore trading platforms and “severe punishment” for illegal acts.
The import price of China’s coking coal exceeded US$300 per ton only three times. The most recent occurred in 2017, when a hurricane disrupted Australia’s supply.
“Given price trends, it can be assumed that Chinese steelmakers will breathe a sigh of relief when they see the opening of the import market,” Hall said.
Analysts say Australia’s import ban is a key reason why Chinese steelmakers pay much higher prices for coking coal than their international competitors. According to data from Standard & Poor’s Global Platts, India’s import price (including freight) is about US$205 per ton, while China’s is nearly US$100 higher.
However, the boycott of Australian supplies is a boon for North American coking coal producers, which have substantially increased their sales to China.
In May, they exported 700,000 tons to China, compared with only 1 ton in the same period last year. Miners in Indonesia, Colombia and Mozambique have also increased their exports to China.