It is yet another worrying sign for China’s steel sector which has been hammered in recent months by depressed demand. It is just as worrying for those international coking coal producers who had in recent years set their sights and ambitions on an apparently insatiable appetite from the Asian giant for their product.
But with growing economic uncertainty and a sharp downturn in consumer sentiment, the appetite of China’s dragon has been well and truly satiated and is manifesting itself in continuing defaults on coal cargoes as end users and traders struggle to secure letters of credit. Shanghai-based SteelHome told Energy Publishing the State-owned Assets Supervision and Administration Commission (ASAC) of Shanghai late last month warned steel traders from Ningde in Fujian province among others, are posing a major risk to state-owned assets by the use of false warehouse receipts to secure funding.
“Currently bank loans are shrinking in all aspects, it has been an informal code of conduct in most banks that no loans and no credit [be issued] to steel traders or businesses whose owners are from Fujian or Zhejiang province,” ASAC said.
SteelHome reports that more than 20,000 steel trading houses in China are currently on the verge of closure “because banks are continuously pulling credits”.
The crisis [sees a risk] of collapse in the steel industry and could possibly trigger all kinds of economic and social problems,” SteelHome said. And the problems don’t stop there. Preliminary customs data for July shows China’s imports of coking coal were 3.9Mt, down 3.2% year-on-year. The largest supplier of coking coal was Mongolia, providing 1.66Mt, a 7% y-o-y increase but significantly down from the country’s June coking coal exports to China of 2.52Mt. Just as worryingly for seaborne coking coal producers, domestic prices for coking coal within China have been plummeting while stocks remain high.
In the last week of August, the price for Shanxi Liulin #4 primary coking coal and Xiaoyi primary coking coal dropped to RMB700 (US$110) and RMB670 ($106) respectively, a drop of RMB50 ($7.90) week-on-week for each, according to Fenwei Energy Consulting.
Fenwei also reports that as at August 27, coking coal stockpiled at 32 major steel mills and coke plants was 6.27Mt, a fall of just 154kt w-o-w.
“There is no doubt demand for China’s steel is going to continue to fall and along with it the chances of significant imports of coking coal into what many had once believed was the promised land for exports,” an industry analyst said. “China’s middle class has started to do what the middle class around the world is doing and that is stashing their cash for the rainy day many feel is about to arrive. That is the same middle class in China which had been investing in real estate and fancy cars and air conditioning units.”
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