SMM Outlook: Cokes Price will Enjoy Strong Upward Momentum in October

SHANGHAI, Oct 14 (SMM) - September is the traditional peak season for the coke market. Although the terminal demand for steel did not improve significantly due to the poor overall environment this year, the steel inventories still declined, encouraging steel mills to purchase coke on rigid demand. Therefore, the supply and demand of coke maintained a balance. At the end of September, steel mills increased the purchase of coke before the National Day holiday. This, coupled with strict safety inspections of coal mines, reduced the supply of coking coal in the market and lifted its prices. For this reason, the cost support for coke prices stayed firm, and steel mill accepted a raise of 100-110 yuan/mt in coke prices. 

From the perspective of terminal demand, the National Congress of the Party will be convened soon in October, which is likely to reiterate the principle of “stabilising economic development and securing people's livelihood”. In addition, the supply of coking coal is still tight, thus the coke prices will enjoy strong upward momentum and might jump significantly by 200-300 yuan/mt.

The reasons are as follows.

Firstly, as environmental protection-related production restrictions has been introduced across the country, most coke enterprises have cut the production further, while the recent pandemic outbreak in Shanxi and Inner Mongolia has again tightened the coke supply. In addition, the terminal demand also decreased as sintering machines in the steel mills of Tangshan were under production restriction. As such, the capacity utilisation rate of coke ovens is expected to decline in October, which will be beneficial to coke prices.

Secondly, the in-plant coke inventories of steel mills has dropped again after the consumption during the National Day holiday. Steel mills, who still maintain high output of pig iron, still need to purchase coke for production. However, some coke enterprises are likely to reduce the production further due to losses, which will tighten the coke supply. Meanwhile, steel mills suffered low arrivals of raw materials due to pandemic-induced disturbance to transportation. Under these circumstances, steel mills still have demand for coke in October.

The third reason is attributed to stricter security inspection for the upcoming the National Congress. As a result, the tight coke supply will push the prices to inch higher.

In conclusion, SMM believes that rising coking coal prices will underpin the coke prices, and the second round of coke price hike will be completed soon. Therefore, coke prices will move upward in October amid tight supply.