Sustained high prices for domestic Chinese coke burdens iron ore procurement

Sustained high prices for domestic Chinese coke continued to weigh on end-user iron ore procurement preferences.

China’s domestic coke prices saw five rounds of uptick from producers in recent months, totaling an increase of Yuan 250/mt. Prices rallied on the back of supply tightness amid production cuts and replacement in Shanxi, Hebei and Shandong.

Market sources saw proposals for sixth round of price uptick by another Yuan 50/mt during the week, with limited options for buyers likely to lead to acceptance of price hikes.

Market participants also noted the lack of discounts for imported coke on ramping up of global demand, which would extend further support to domestic coke prices.

Given the further import restrictions on Australian coking coal, Chinese end-users have been under pressure to lower their coke utilization through altering their iron ore burden preferences. Although many Chinese end-users have sufficient stocks to last until January 2021 when import quotas are expected to be reset, the current uncertainty has steered procurement preferences towards less coke-intensive iron ore products, a task not made easier by high iron ore prices as well.

While iron ore prices have tapered down with the Platts 62% Iron ore index at $116.95/dmt CFR North China on Oct. 28, down from multi-year high of $130.80/dmt on Sept. 3, thinning steel margins have exacerbated the impact of high prices for raw materials.

Closer to the winter season with expectations of stringent sintering restrictions, lump demand has continued to be largely muted despite minimal premiums for seaborne and portside cargoes.

Despite its higher production efficiency offered, the particle size of lump requires the highest energy cost for reduction compared to sinter feed and pellet, leading to higher coke utilization rate.

Some non-mainstream lump brands which typically see stronger demand towards the winter season on account of their hardness and moisture leading to lower degradation in storage were seeing even weaker demand with these characteristics requiring even higher coke consumption for usage.

On the contrary, pellet being the direct feed counterpart of lump has seen sustained demand with its usage seen as coke-efficient through a lowering of slag rate.

The Platts 65% spot blast furnace pellet premium was assessed at $27.8/dry mt CFR North China on Oct. 28, up $2.95/dmt from the previous week.

A Chinese procurement source indicated that current pellet premiums were supported despite thinning steel margins on account of the savings in coke usage. The source also added that with a lowering domestic production of concentrates used for pellet feed due to the winter season and increased coke supply to be expected in January, a shift back towards sinter feed might be more economical.

While high grade fines are typically correlated with lower coke usage, larger end-users were seen to be keeping their medium grade-heavy sinter feed stable, with significant changes over a prolonged period required to the coke bed to reverse the sinter feed grade in the event of unfeasible high grade-medium grade spreads.

A Chinese end-user said that there was a higher utilization rate of South African fines for some end-users due to its higher Fe levels against medium grade fines, and a pricing discount factored in for its alkali level. The source added that at current pricing, the impact of its potassium levels on coking rates would be less significant than the higher production efficiency offered on account of its higher iron content relative to its current pricing.
Source: Platts