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The price of a key raw material for China’s vast steel industry has skyrocketed even as Beijing tries to curb commodity prices.
High-quality coking coal supplied to China has exceeded $ 300 per tonne for the first time since 2017, nearly 150% since October, due to the reduced supply that has left steel mills on balance and paying a much higher price than international rivals.
Rising prices underscore China’s difficulties in trying to cool hot commodity markets, which it has identified as a key risk to its economic recovery and foreign policy goals.
China is relatively self-sufficient in coking coal, unlike most other commodities, with domestic mines supplying about 80% of its needs. But the scale of its steel industry means it still imports about 65 million tonnes a year of the steel ingredient.
An important part of this total came from Australia. Then, in October, Beijing qualified an unofficial ban on coal imports of the country due to a diplomatic dispute with Canberra over the origins of the coronavirus crisis.
“Australia’s removal of the image last year significantly reduced coking coal imports into China and the figures reflect that,” said Julien Hall, director of Asian metals prices at S&P Global Platts
Between January and May this year, China imported 18.2 tons of coking coal from all destinations, up from 31.7 million tons in the same period in 2020, according to S&P.
At the same time, domestic coking coal production has fallen, under pressure from safety and environmental inspectors, which rose before the July 1 Communist Party’s 100th anniversary.
“With 30 to 40 percent of production restricted to key production centers in Shanxi and the closed Mongolian border, domestic coking coal prices in China continue to rise,” said Colin Hamilton, an analyst at BMO Capital Markets. Mongolia is another leading supplier of coking coal in China.
So far, there have been few indications that coca coal prices will rise at the center of political leaders in Beijing. However, this could change as prices continue to rise.
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The rise in the price of iron ore – another key ingredient in steelmaking – has attracted most attention. Earlier this week, China’s top economic planning agency, the National Development and Reform Commission, he said he would investigate “Malicious speculation” on national iron ore trading platforms and “severely punish” any illicit action.
There have only been three other occasions when Chinese imports of coal coke have traded above $ 300 per tonne. The most recent was in 2017 after a cyclone disrupted Australian supplies.
“Given the price trend, it would not be irrational to assume that Chinese steelmakers would be relieved to see the opening of the import market,” Hall said.
Analysts said the ban on importing into Australia is one of the main reasons Chinese steelmakers have been paying much more for cooking coal than international rivals. India’s import price, including the cost of transportation, is about $ 205 a tonne, while China’s is nearly $ 100 higher, according to S&P Global Platts.
However, the boycott of Australian supplies has been a big help for North American coking coal producers, which have drastically increased sales in China.
In May, they shipped 700,000 tons to China, up from just one ton in the same month last year. Miners from Indonesia, Colombia and Mozambique have also increased their exports to China.
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