News
Chinese Steel Product Prices to Rise in Long Term Due to Coke Price Pressure 17 Apr 2008
By Interfax-China
17 Apr 2008 at 10:08 AM GMT-04:00
The recent hike in international coking coal prices will further increase Chinese steel product prices in the long term, a Ministry of Commerce (MOFCOM) report said yesterday.
An immediate rise in domestic coking coal prices has been staved off by China's high level of domestic coking coal production and Chinese government restrictions on the export of coking coal, the ministry said.
However, international coking coal prices are expected to significantly push up domestic coking coal prices in the long term, even though domestic prices are yet to respond to international prices. The increase will have a knock-on effect on Chinese steel product prices, the ministry said.
Coke costs account for 20% of total steel making costs, based on the average consumption of 0.5 to 0.6 tonnes of coke to produce 1 tonne of steel. Coking coal is a major raw material for coke production.
China's average price for steel products reached RMB 5,775 ($826.24) per tonne in March, up 9.6% from January this year, due mainly to a significant rise in iron ore prices during the first quarter, the report said.
On April 9, Japan's Nippon Steel Corp. and Korea's POSCO [NYSE:PKX] agreed on a new coking coal benchmark price for 2008 with BHP Billiton [NYSE:BHP]. The new price, which rose from last year's $98 per tonne to $300 per tonne, represents an increase of 206% to 240% on 2007, dependent on origin and grading.
China imported 840,202 tonnes of coking coal in the first two months this year, up 59.85% from the same period last year. In February alone, the country imported 231,655 tonnes of coking coal, of which Australian coking coal accounted for more than 50%.
China produced 124.94 million tonnes of crude steel in the first three months of this year, up 8.6% year-on-year, while crude steel output in March alone reached 44.87 million tonnes, up 11.5% from last year, according to data released today by Mysteel.
China's pig iron production climbed 7.6% year-on-year to 117.8 million tonnes in the first quarter of 2008, while steel products output reached 140.94 million tonnes, expanding 12.2%.
China's iron ore production stood at 167.69 million tonnes for the first quarter of this year, up 25.1% from the same period last year.
Commentary
Chinese coke producers will soon respond to the rise in benchmark coking coal prices by lifting coke prices in the domestic market. However, domestic coke prices will still remain lower than international prices due to ample domestic supply. Therefore, Chinese steel mills will be less affected by soaring coke prices than their foreign counterparts.
Chinese steel mills are also preparing to benefit from the expanding difference in steel product prices between the domestic and international markets. However, they should be wary of the government's resolution to curb excessive exports, and any large-scale increase in steel product exports is likely to spur the government into implementing even tougher export taxes.
