SHANGHAI, May 20 (SMM) - The third round of coke price cuts was completed this Wednesday, and the constantly falling coke prices have quickly reduced the profits of coking companies. So far, coking companies’ profit has dropped to 29.5 yuan/mt, and there are more coking enterprises having suffered losses. Now comes the question as of whether steel mills will initiate the fourth round of coke price cut and will coking companies face greater risks of losses.

To answer this question, we need to find out the exact reasons that encouraged stainless steel mills to force down coke prices three rounds in a row.

The first round of coke price cut was completed around May 7, when steel mills have just finished restocking before and after the Labour Day holiday, with relatively sufficient inventory that could sustain the production for around 2 weeks. And mills have poorer profits compared with the present, with profits of BF rebar and HRC at -196.5 yuan/mt and -242.4 yuan/mt respectively. The in-plant finished products inventory across steel mills was also high amid poor sales, hence the mills greatly forced down coke prices, and the process was smooth as coking companies mostly had a profit of 437 yuan/mt.

The second and third round of coke price cut experienced more or less the same process, while the situation finally changed after the third round, when the profits of steel improved greatly to -87.3 yuan/mt and -109.7 yuan/mt for BF rebar and HRC respectively. In addition, the mills’ in-plant steel stocks dropped, while the profits of coking companies dropped palpably to 29.5 yuan/mt for the moment, and some have even suffered losses. Therefore, coking companies are now reluctant to lower their prices, and some have planned to reduce the production.

SMM believes that steel mills will only be able to make profit after coke prices fall for one more round as steel products sales are still poor despite narrowing coking profits. Therefore, there is still high possibility that coke prices will drop for the fourth round albeit signs of stabilising coke prices and rising cost support, when coking companies may generally suffer a loss of 170.5 yuan/mt and start to cut the production extensively.