The rising costs of coking coal might force China Steel Corp (CSC, 中鋼) to raise domestic product prices for December contracts despite it reducing prices for October and November contracts by 1.3 percent per tonne.
“Coking coal price would definitely affect China Steel’s production costs because the material is widely used in steelmaking processes,” CSC vice president Liu Jih-gang (劉季剛) said by telephone on Thursday.
The nation’s only integrated steelmaker is to announce its price adjustments for December shipments by the end of next month.
Iron ore and coking coal are key steelmaking ingredients. While prices of iron ore have remained weak this year, coking coal has surged in the past month because of a short supply of coal due to devastating floods in China’s major production regions.
“The issue of undersupply of coking coal is a short-term phenomenon,” Liu said. “But some steel mills and their downstream customers have started building up inventories in anticipation of a coal shortage in the future.”
The price of coking coal rose above US$210 a tonne in the past week, compared with about US$90 a tonne at the beginning of last month, according to Metal Bulletin’s premium coking coal index.
Liu said coking coal prices might not return to normal levels anytime soon.
“Some of our downstream clients are planning to raise prices of their end products as they anticipate material costs continuing to grow,” he said.
China Steel also factors in downstream companies’ global competitiveness and a global glut in steel when setting its prices, Liu said.
“For example, if demand for some products is still weak, we tend to absorb the [material] costs to help downstream companies retain their price competitiveness,” Liu said.
China’s plan to cut coal and steel production capacity to meet its supply-side reform targets is another key factor in China Steel’s pricing decisions, Liu said.
Beijing has pledged to shake up its state-owned enterprises to eliminate excess capacity and curb pollution.
Shanghai Baosteel Group Corp (寶鋼集團) and Wuhan Iron & Steel Group Corp (武漢鋼鐵) on Tuesday agreed to merge their listed units, which would create a new entity — and the world’s second-biggest producer by capacity behind ArcelorMittal SA.
“If the supply-side reforms really help digest inventories and relieve the severe oversupply in China, steel prices in the global market would be more stable in the future,” Liu said.
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