Reposted from: Futures Daily
On the first trading day after New Year’s Day, the main coke contract 2305 closed at 2627 yuan/ton with a negative line, a decrease of 43 yuan/ton throughout the day, with a range of 1.66%. In the spot market, as the price of coking coal soared and fell, the support on the cost side weakened, and coke also ushered in the first round of comprehensive price cuts after the festival, with a range of 100-110 yuan/ton. At the same time, port quotations also loosened,Rizhao PortQunyi’s outbound quotation was lowered by 30 yuan/ton to 2,720 yuan/ton. At present, the spot price of coke is higher than the futures price, and the price difference between futures and current prices is 93 yuan/ton. The market is in a reverse state, and the bear market structure is showing.
Overcapacity weakens the profitability of coke enterprises
Before the price of coke was cut, the profits of coke companies were very meager. The data shows that as of December 29, 2022, the average profit per ton of coke of 30 independent coke companies across the country is 43 yuan/ton. The formation of this situation is mainly affected by the following factors: First, the profitability of downstream steel mills has dropped significantly compared with previous years. According to market data, the gross profit per ton of rebar steel mills in Hebei is -278.43 yuan/ton, and the profit rate of 247 steel mills is only 19.91%, a year-on-year decrease of 66.23%. The downturn of downstream steel mills has become the main factor that makes it difficult for coke enterprises to improve their profits. The second is overcapacity in coke enterprises. In 2022, 23.26 million tons of outdated production capacity will be eliminated and 49.28 million tons will be added. By the end of 2022, the country’s cumulative coke production capacity will be about 553 million tons. The relatively large supply capacity has become the fundamental reason for restraining the profit expansion of coking enterprises; the third is coking coal out of stock. In the case of rising coke prices, the start-up of coke ovens has increased, and the consumption of coking coal has increased. The rise in coking coal prices has become an apparent factor that erodes the profits of coking companies. Therefore, overcapacity is the root cause of the low profits of Jiaoqi.
The operating rate of coke ovens gradually recovered
The insufficient supply of coking coal in the fourth quarter affected the effective release of coke oven production capacity. Since mid-November 2022, the capacity utilization rate of independent coke enterprises has mostly remained below 70%, and the average daily coke production has not reached the previous high point. In the meantime, coking companies were unable to replenish their warehouses in full, and the coking coal stocks of coking companies were mostly maintained at a low position. The coking coal stocks of independent coking companies in the full sample were maintained at around 10 million tons, or even less than 10 million tons in some cases, and the average usable days were only maintained at 11-12 days, lower than the average of previous years. The supply of low coking coal directly limits the supply of coke, and after the optimization of epidemic prevention and control measures, the replenishment of coking coal can be smooth.
Unlike coke enterprises, which are affected by insufficient supply of coking coal and limited coke oven start-up, steel mills are mainly affected by the decline in demand for finished products, lower profits of finished products, combined with the impact of environmental protection and production restrictions in winter, and the start-up of blast furnaces continues to be at a low level. As of December 30, 2022, the utilization rate of the blast furnace capacity of 247 steel enterprises was 82.59%, and the average daily output of molten iron was 2.2251 million tons, both of which had a drop of nearly 10%. On the whole, before and after the Spring Festival, when the demand for finished products has not recovered effectively, the start-up of blast furnaces will remain at a relatively low position.
Port inventories will continue to decline
From October to November 2022, due to the inability of the coke enterprises to effectively transport the coke to the steel mills, the inventory of coke enterprises will continue to accumulate, while the downstream steel mills will continue to reduce their inventories. After the optimization of the epidemic prevention and control measures, the coke stocks of coke companies fell rapidly. As of the end of last week, the coke stocks of coke companies had dropped to 790,500 tons, a drop of 40.8% from a high level, and the stocks of steel mills also returned to above 6 million tons. In the meantime, the port coke inventory remained at a low position, and it is expected that the port coke inventory will continue to decline under the condition of lower coke prices.
Every year around the Spring Festival, coke has its own operating rules. Before the Spring Festival, steel mills take the initiative to replenish their warehouses, pushing up the price of coke; after the replenishment is completed, the price of coke begins to gradually drop due to the sharp drop in downstream demand. At present, the first round of price cuts for coke has landed. However, the futures market has already expected three rounds of price cuts. If the price of coking coal goes down, there will still be room below the price of coke. (Author unit: Zhonghui Futures)
Editor: Zhang Yao
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