Prices have fallen below the cost line, and some coal mines have started to cut production! Is the rebound in coking coal prices expected to continue?

Since October last year, coking coal has experienced a very smooth one-way downtrend. Coking coal futures prices have fallen by 52.4% from their peak in October last year, with a decline of 36% since the beginning of this year.

"The main reason for the sharp drop in coking coal futures prices is the supply-demand imbalance. Raw coal production from January to April this year increased by 6.6% YoY, while thermal power generation decreased by 4.1% YoY, highlighting the significant oversupply of steam coal. Coking coal production from January to April increased by 6.1% YoY, while domestic steel demand remained weak. New housing starts in the real estate sector decreased by 24.1% YoY, and railway investment only increased by 1.6% YoY. Upstream inventories continued to accumulate, with significant inventory pressure," said Chen Weichang, head of the ferrous metals market at Zhonghui Futures.

Futures Daily reporters learned from interviews that after three rounds of price reductions by steel mills, coking plant profits continued to decline, leading to a decrease in coke production. In terms of inventory, although coke inventories at ports and steel mills have decreased, independent coking enterprises still have relatively high inventories. After coking coal futures prices fell below the production costs of some coal mines, production has decreased. The weekly output of cleaned coal from 523 sample mines fell from a peak of 817,000 mt to 741,000 mt, but mine inventories still reached a new high, currently at 4.86 million mt.

Has the coal supply-demand situation changed after the continuous price decline? In response, Liu Huifeng, chief researcher of ferrous metals at Donghai Futures, believes that the current supply-demand pattern in the coking coal market has not changed significantly. Raw coal production in the first four months of 2025 increased by 6.6% YoY, and coking cleaned coal production increased by 6.12% YoY, while pig iron production only increased by 0.8% YoY. Under relatively pessimistic demand expectations in the market, the inventory pressure of coking coal continues to be transmitted upstream. As of last weekend, the coking coal inventories of 523 coal mines nationwide rebounded to 4.8604 million mt, reaching a high level for the same period in the past five years and rebounding for nine consecutive weeks.

"Currently, the daily pig iron production remains above 2.41 million mt, and steel mills' demand for raw materials is moderate. However, they are controlling procurement speeds and maintaining a low-inventory strategy. Currently, the overall supply and demand of coal and coke are still loose, with significant pressure on upstream sales," said Chen Weichang.

It should be noted that recently, coking coal prices have fallen below the production cost line of some high-cost coal mines, leading some mines to start cutting production. As of last weekend, the daily output of coking cleaned coal from 523 coal mines nationwide was 740,600 mt, a decrease of 76,300 mt YoY. Meanwhile, affected by the inverted import coal prices, coking coal imports in the first four months decreased by 1.24 million mt YoY.

"Production cuts by coal mines are not enough to reverse the current supply-demand imbalance in the coking coal market."Liu Huifeng said.

According to Chen Weichang, influenced by stricter safety supervision and environmental protection policies, the production of coking coal in the main producing areas has been declining continuously in recent times and is currently lower than that of the same period last year. However, there have been no widespread production restrictions or production cuts policies implemented so far, and the sustainability of the production decline still needs to be observed. There is an expectation for a fourth round of price reductions for coke, and procurement in the spot market is relatively cautious.

Looking ahead, Chen Weichang believes that coking coal prices have seen a rebound recently. From the perspective of delivery factors, the current warrant cost is around 830 yuan/mt. Given that it is difficult to quickly reduce the inventories of independent coking enterprises and coking coal mines, the relatively loose state of supply and demand for coal and coke is unlikely to change. It is expected that the rebound in futures prices will be limited, and in the medium term, there is still a need to be vigilant about the risk of further price declines.

"After the price of the most-traded coking coal futures contract fell to around 700 yuan/mt, there was a phased rebound. This was mainly because the futures market was trading at a significant discount at that time. In the short term, with the intensification of the Middle East conflict, crude oil prices have risen sharply. Historically, there has been a relatively good positive correlation between crude oil and coal prices. Therefore, the recent phased rebound in coking coal prices may continue, but the pattern of supply-demand imbalance has not changed, so the rebound may end at any time," Liu Huifeng said.