The coking coal market has remained tight recently, with rising costs continuing to drive a sharp increase in coke prices. On Aug. 24, the first round of coke price hikes was implemented, with wet-quenched coke and dry-quenched coke rising by RMB 50/t and RMB 55/t, respectively. Before the first round was fully implemented, several coke producers launched a second round of increases on Aug. 24, raising prices by RMB 100-110/t. Some steel mills quickly accepted the hikes, and the second round was fully implemented on Aug. 26. A third round of RMB 100-110/t is expected to be initiated on Aug. 28. If all three rounds are implemented, cumulative coke price increases will reach RMB 250-275/t.
The key driver of the current coke rally remains the cost pressure created by tightening coking coal supply. At the same time, mounting losses among coke producers, production cuts and relatively high hot-metal output have strengthened the coke market. In the short term, tight coking coal supply should continue to provide solid support, although downstream demand and steel mill profitability remain key constraints.
Coking Coal Supply Remains Tight with Limited Near-Term Recovery
On the supply side, the tight coking coal market continues, with production cuts in Shanxi having a particularly significant impact. Safety inspections remain stringent, while the closure of hidden mining faces, frequent spot inspections and tighter controls on overproduction have combined to reduce supply. Some recently restarted mines are reportedly producing more than 30% below normal levels, indicating that the recovery in supply remains slower than expected.
As of Aug. 20, total coking coal inventories at independent coke plants tracked by CCTD stood at 9.28 Mt, down 24,200 tonnes from the previous week, indicating that restocking demand is gradually emerging. On the import side, Mongolian coal shipments are expected to weaken in the second half of the year amid environmental restrictions and fuel supply issues, limiting the ability of imports to offset domestic supply losses.
With domestic production recovering slowly and imports providing only limited additional supply, the tight coking coal balance is unlikely to ease significantly in the near term. Premium low-sulfur primary coking coal in Shanxi is currently quoted at around RMB 2,450/t, with supply-side constraints continuing to provide strong price support.
Coke Plant Losses Deepen, Reinforcing Cost Support
Rising coking coal prices have significantly increased cost pressure on coke producers. The industry is broadly loss-making, with some plants approaching cash-cost losses. Deteriorating margins have prompted coke producers to cut output, with the utilization rate of independent coke plants falling to 66.78%, down 1.72 percentage points week on week. Average daily coke output declined by 15,500 tonnes to 600,300 tonnes, indicating that production cuts are intensifying.
Meanwhile, coke inventories at independent plants fell to 1.03 Mt, down 182,300 tonnes, pointing to a relatively rapid destocking process. Higher coking coal costs, tighter coke supply and falling inventories are reinforcing one another, providing a solid fundamental basis for further price increases.
However, even if all three rounds of coke price hikes are implemented, the improvement in coke margins will remain limited. With coking coal prices staying elevated, coke producers are likely to retain strong incentives to seek further price increases and maintain production cuts.
Hot-Metal Output Provides Stable Demand Support
Demand has not deteriorated significantly. Steel mill hot-metal output remains relatively high, with average daily output tracked by CCTD at 2.37 Mt, up slightly by 3,200 tonnes week on week. The end of some maintenance work has allowed output to recover, supporting steady demand for coke.
Steel mill coke inventories stood at 6.60 Mt, down 60,000 tonnes week on week, indicating continued destocking. As inventories decline and expectations of further price increases strengthen, some steel mills have begun to replenish stocks, accelerating procurement and providing additional support for coke prices.
However, more than 60% of steel mills remain loss-making. Although most have not yet reached the threshold for cash-flow losses and therefore have limited incentives for significant production cuts in the short term, further rapid increases in coking coal and coke prices could put additional pressure on steel margins and increase the risk of negative feedback from the downstream sector.
Tight Coking Coal Supply to Keep Prices Firm; Supply Recovery and Demand Key
Overall, the core issue in the coking coal market remains constrained supply and a slow recovery in production. Rising coking coal prices are pushing up coke costs, while coke producers' losses are prompting further production cuts. Combined with relatively high hot-metal output and emerging restocking demand from steel mills, this has created a supportive market dynamic.
In the near term, the lack of any substantial improvement in coking coal supply should keep prices biased to the upside, while the third round of coke price hikes has a reasonable cost and supply-demand basis. With the traditional peak season approaching, downstream restocking demand may increase temporarily. Combined with continued coke production cuts, this could provide further support for coking coal prices in Q4.
However, weak steel mill profitability means that downstream price tolerance remains limited. If end-user demand fails to improve as expected from late August into September, production cuts at steel mills could transmit pressure back up the supply chain, creating a risk of temporary negative feedback.
The key to the next phase of the market will therefore be the balance between the pace of coking coal supply recovery and the extent of improvement in downstream demand.
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