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Could China Be The Game Changer in 2013?
Could China reclaim its role as a major global met coke exporter? And what would that mean for coking coal exporters and other met coke producing countries? The answer isn’t clear but Energy Publishing’s Jan Pricipato endeavours to find out.
Before 2008, China was a major exporter of met coke, shipping 14 to 16Mtpa to international steel producers. The price of Chinese met coke was used as the benchmark for the industry, and prices were extremely good in the pre-financial crisis days, at one point soaring past $600/t FOB for Chinese 12.5% ash product.
Then in August 2008, the Chinese government raised the export tariff on met coke to 40% from 25% in an effort to ease tight supply conditions on the domestic coking coal market.
The withdrawal of China as a major supplier normally would have sent seismic shockwaves through the international steel industry. However, when the Global Financial Crisis reared its ugly head in autumn 2008, steel production dropped sharply.
“For the last three years met coke transactions have been few and far between,” a trader told Energy Publishing. “India has been the biggest market. Ukraine is increasing its production and sales in Europe, but over all across-the-board sales volumes have been low. It is rare to hear of a Chinese cargo of met coke being sold. It just doesn’t happen often.”
A recent development has the potential to shake up the global met coke market and return China to its former role as a major supplier. Under pressure from the World Trade Organization (WTO), the Chinese government repealed its 40% export tariff on met coke effective January 1. Now coking coal and met coke producers are waiting to see if Chinese met coke exports will begin to flow once again into the global market, and exactly how much will be flowing.
“If China begins exporting again at the same level it was before the 40% export tariff was put into place, some 16Mtpa, that could result in the removal of about 18Mt of coking coal from the seaborne market,” a source said.
“Coking coal producers certainly don’t need that, not with the soft market they are already facing.”
However, global market dynamics have changed since the time that China was a dominant met coke exporter. China may find that demand simply isn’t there.
“I think the steel mills will use met coke as a leverage tool during price negotiations with coking coal suppliers,” a trading source said. “You know they’re going to do that, but I don’t believe the steel mills will flock to buy Chinese met coke.
“Two or three new coke plants have been put into operation in the United States during the past three years. US steel companies don’t need to import Chinese coke. European steel mills are buying from regional suppliers. I don’t think they will be in a rush to buy Chinese met coke.
“Brazil could increase its Chinese met coke consumption, which could hurt US coking coal exporters, but I don’t even think the Brazilians will go for Chinese met coke in a big way. I could be wrong, but it doesn’t look that way.”
Met coke producers in India, Europe and Colombia could be hurt if Chinese met coke producers tap into the export market once again.
“If China comes back it could erode the market base for producers in the other countries,” the trading source said. “India will feel the biggest pinch. The Colombian met coke industry is just trying to hang on without China as a factor. High shipping costs and lower prices are hurting them.”
“I believe the government will legislate some other way to achieve the same goal and get around the WTO complaint of unfair business practices,” a source said. “If China claims it is regulating met coke due to environmental concerns, no one, not the United Nations or WTO, will take issue.”
“In 2007 steel mills around the world were very dependent on Chinese metallurgical coke. Today everyone has moved on,” a trader said. “We’re going to be closely following how this latest development affects the market, but we aren’t overly concerned at this point.”
More information can be found in the China Coal Report which presents weekly updates on both the producer and consumer sides of the Chinese coal market. With information on trade, transport and policy updates, the China Coal Report provides comprehensive coverage for anyone dealing with the Chinese coal market.
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